Can be very difficult to tell because in some ways they go hand in hand.
Guess the way I differentiate is when I'm unhappy I can still think straight and get things done, when I'm depressed even the smallest task seems mammoth.
I tend to think that I should put up with as much unhappiness / depression as I can before going to the doctor and getting pills. I've had a number of mates who went on medication and one couldn't even hold a glass of water properly because they were shaking so much.
I dont know the official definition of depression relating to unhappiness. But my assumption is that when unhappiness becomes severe and chronic it becomes depression. Actually I don't think it matters what we call it, if it is interfering with your life, it is a problem.
As far as taking medication, it was an issue of how bad the depression got. When it became severe, I was willing to try medications. I know that medications cause side-effects in some people, but the side-effects are usually minor. Risk vs benefit. Is the risk of taking medications lower than the benefit that might come from the use of the medication. It is a personal decision, I think.
The best way I can think of depression is a kind of trap where too much unhappiness causes more unhappiness. I guess the best indicator is feeling you're too sad to have the self control to solve the problem that causes the sadness. Does that make sense?
And about the medication question:
I took a "small" dose of medication personally and I don't think it made any difference. The strongest effect it ever had was the effects of not taking any for 3 days (ran out temporarily)... which was pretty intense. But overall, my experience could be summed up as "I don't know if it helped, but it definitely didn't make things worse." If I was back in the situation where I didn't know if it would work for me or not, knowing what I do now, I'd try a light dose, but not more than that.