What is the difference between “lay” and “lie”?

These are two different verbs: one means: to be positioned horizontally (lie) and the other to position something else horizontally, to put something down (lay)

They sound similar and have a meaning connected to being horizontal, that's one reason for their confusion.

Make sure you also don't confuse their past tenses:

Lay: laid

lie: lay

Yes, Lay is the present tense of one of them and the past of the other: that's the other reason for their confusion!