Good question. Ah, what is in a name? A rose by any other name would smell as sweet. So said William Shakespeare. And Elie Wiesel famously said that "no human being is illegal." Reportedly when Ronald Reagan was asked what we should do about the undocumented worker problem, his response was "document them." There is no substantive or legal difference between the formulations illegal immigrant, illegal alien, undocumented alien, undocumented worker, etc. etc. They are all political footballs for debaters on various sides of the immigration reform issue to kick. Usually it is the undocumented person and their families who suffer the pain of an indiscriminately harsh immigration system. Anyway, that's my two cents.
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There is no legal definition of these terms. For most people they mean the same thing: a person who is a citizen of a country other than the United States, who is present in the US without current legal permission.
"Illegal alien" is an offensive term to some people because it implies that the person is somehow "illegal", which can never really be true. They may be in the US illegally, but they are not "illegal" persons.
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Same thing. It doesn't matter what you call people in that unfortunate situation because the end result is the same. As for what is offensive and not, I find the word alien highly offensive, as if people who are not legally in the US come from some other planet.
It's pretty difficult to explain either one, because different people use the terms differently, but I'll give it a shot.
"Illegal Immigrant" is an older term. People have historically used "illegal immigrant" to mean people here without a valid immigration status. Many have started moving away from using the term, some say because it's offensive, but also because it really doesn't make any sense on a lot of levels (which I think is why some people find it offensive, I think).
An immigrant is a person intending to move another country to stay, and a person can't really be illegal - only the actions of that person can be illegal. If you let your car's parking meter run out, we don't call you an "illegal parker." Caught speeding? We don't call you an "illegal driver." This wouldn't describe your activity (speeding) like calling you a "Speeder" does.
"Undocumented immigrant" better describes the status, or situation of an immigrant who doesn't currently have valid legal status in the U.S. - something you CAN use to describe a person as opposed to actions. So, on this logic alone, many people think that the term "undocumented immigrant" makes more sense.
But there is something more here - up until this point, you could take the terms as basically interchangeable. The bigger problem to many was that the term "illegal" was actually misleading - it implied that there was a way that many of the people described could have been "legal," and that being "illegal" was matter of choice or free will when this simply wasn't true.
For a great many people, there is absolutely no way under current law to become "legal" - to obtain legal immigration status. Not just a very, very long line they would need to get on, but no line at all. Yes, there are a few for whom it can be argues that they made a choice to enter illegally or let visas expire - fair enough.
But what of those brought here illegally as children by their parents who never made a conscious choice to do anything wrong, who believed themselves citizens until they tried to apply to college as they had never been told otherwise, and who have no options under current law? The term "illegal" is simply grossly misleading as applied to such people, since it implies some exercise of free will to violate the law.
Undocumented immigrant, therefore, takes into account several differences from "illegal alien" - it seeks to describe a person's status rather than an action of the person, it makes sense logically, and it doesn't sometimes-incorrectly imply that a person has willfully violated the law.
Hope this helps.