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What's the difference between the two, and how to use it? I know a manga has volumes which in turn contain chapters, but do I set the manga list item to the completed volume and current chapter-1? Or how do I use this? Which one is for what?

Much like a regular book most manga has chapters. So if you read volume 1 and has chapters 1-5. You would list it as reading volume 1, chapters 5. If a completed series has 3 volumes and 27 chapters then you would list it like that. If it is an unfinished series you can just keep up with chapters or also add volumes as manga is published in tankobons (trade paper backs).

A volume contains a certain number of chapters. It's easier to go by chapters.