Been doing some research about image licensing. For those who are interested, here’s the summary of it. Please note that this is a general guide on the licensing terms. It may differ from different companies.

Rights-managed (RM)
Rights-managed products are licensed on a use-by-use basis. The factors used to calculate the fees for this kind of image includes size, placement, duration of use and geographic distribution. Buyers and sellers have to be aware that use is restricted and buyers and sellers must stick to the terms of the license agreement which is there to support the value placed on the image.

The concept of “rights managed” comes from copyright, a statute that allows authors and publishers of works to be the sole arbiter of the exploitation of that work, and to set fees associated with that work. The economic incentives afforded by copyright give artists one way to make a living through their creative works.

Royalty-free (RF)
Royalty-free products may be used by you multiple times for multiple projects without incurring additional fees. Royalty-free pricing is based solely on the file size of the product you need and the number of people entitled to use it, not the specific use. You don’t have to pay any additional royalties on a use-by-use basis.

Royalty free has the advantage of being simple to understand for both photographer (who need not worry about policing usage by the buyer) and the buyer who is relieved of the burden of having to monitor use.

If buying a royalty free image then you still need to be careful how you use it. For example, if the image features people who may be recognisable and there is no model release then a buyer should not use such an image for promotional purposes. Also most royalty free images prohibit use of an image on T-Shirts etc.