Physical Activity: any bodily movement produced by the contraction of skeletal muscles that result in a substantial increase over resting energy expenditure.
Examples: taking the stairs, lifting heavy objects as part of work, etc.
Exercise: a type of physical activity consisting of planned, structured and repetitive body movement done to improve or maintain one or more components of physical fitness.
Examples: spin class, yoga, planned run/walk/swim/bike ride, weight training program, etc.
A lot of people, myself included, use these two terms interchangeably. Just wanted to share what they really mean.
Bottom line: Physical activity AND exercise are important for good health. It doesn’t really matter what you call it… movement is good.
[From ACSM's Guidelines for Exercise Testing and Prescription, 8th edition].