Differentiation is the activity of describing how that position is different - in other words, what are the unique characteristics of your brand, or the unique feature functions of your product or service.
In practical terms, differentiation is expect in Unique Selling Propositions or USPs, which then form the basis of marketing campaigns and sales pitches.
USPs take about why you or your product is better, faster or cheaper, why you can do things that no-one else can do, and therefore what are the unique benefits that you can engender in the recipients life.