Where design stops and development continues
Design answers what the product should be: its features, its form, its board and its user experience. Development proves it and delivers it: building prototypes, iterating on test results, passing EMC and safety testing, engineering the board and enclosure for cost-effective manufacture, and supporting the production line until quality is stable.
Why the distinction matters when choosing a partner
A design-only supplier hands you drawings and a schematic, and leaves the prototyping, certification and manufacturing risk with you. If you are taking a physical product to market, look for a partner whose service runs through to manufacture, so the people making the early design decisions are the same people who have to make them work on the production line.
For the wider distinction between the two design disciplines involved, see what are the differences between product design and industrial design.