There isn't much difference if considering just the collets in isolation .
The real difference in practical use comes from the means of mounting in machine spindle .
The 5C collet was designed to use directly inside the machine spindle – no intermediate arbours , no chucks , no overhang , very little accumulated error , minimal loss of headroom and excellent rigidity
The ER collet was designed to be used in a collet chuck mounted externally to the machine spindle – intermediate arbour , collet chuck , big overhang , lots of accumulated error , large loss of headroom and poor rigidity .
The tale of 5C collets not closing parallel is 90% myth – correct collet on correct size work closes perfectly . An error does arise with slightly undersize work but nothing usually to cause problems .
Many high class milling machines use in spindle collets to get the highest precision .
Not that common but machine spindles designed to use ER collets internally could be excellent for many purposes .
On larger machines with ISO or other big taper spindle mountings the advantages of quick tool changing can outweigh the disadvantages of external collets . In any case there is not so much loss of rigidity with big taper mountings .
Michael Williams