The primary difference is their location in the network stack. An AWS Security Group is an external firewall operating at the cloud infrastructure layer, controlling traffic before it ever reaches your virtual machine. It only supports "allow" rules and acts as the first line of defense to block unauthorized traffic at the perimeter.

In contrast, the Windows Firewall is an internal host-based firewall operating inside the instance's operating system layer. It evaluates traffic after it passes through AWS, allows you to create explicit "deny" rules, and handles application-specific security. You need both to achieve deep, layered defense for your server.