SOAP and REST are both web communication protocols.
SOAP (Simple Object Access Protocol) – messages are transferred in only XML format and has lot more standards associated to it. The standards are also transferred along with the message whenever it is passed. This makes the message heavy.
REST (Representational State Transfer) – messages can be transfeered in JSON (Java script object notation), XML or even a text format. Thus making it light weight.
In D365FO Integration can be performed via the custom web services (Services node in AOT) or the Data Entities using the Odata protocol. Whenever a custom service or a Data Entity is created and deployed it creates 2 service endpoints one for SOAP and one for REST.
In AX2012 only SOAP web services were supported for performing CRUD operations.