From an technical perspective:
PU leather is an artificial material made by superimposing a polyurethene (PU) layer over a fabric backing. This backing may or may not contain shavings of real leather. However, real leather does not in anyway contribute to the look, feel or properties of PU leather. These shavings are waste generated while making other leather goods. This type of leather is also called bonded leather, faux leather or vegan leather.
The layer of PU on top of the fabric can be given a variety of textures and markings to mimic real leather, using industrial hot press methods.
This is a photo of Faux Leather (Image Source: leather-fabrics.com). Notice the back of the material - it is a soft, fabric backing made up of polyester which contains no real leather.
Real leather comes in many shapes and forms too. The best is called full grain leather. Most leather in the market is not made with full grain leather, but made with split leather - this leather is what is left over after the top most grain layer has been used up. The story of split leather is somewhat similar to PU leather. In the sense that a pattern is imprinted on split leather to make it look as per different design requirements. However, split leather definitely still smells and feels like leather, unlike PU leather.
This is a piece of split leather - this is how the backside of real leather looks like. Fibrous and a bit rough, when unprocessed.
The ultimate in leather, full grain leather is the real good stuff which smells great and looks UNIQUE from piece to piece. Full grain leather is not heavily covered up with any coatings. You can see the natural grain of the hide, on any product made with such leather. And unlike split leather or PU leather, this leather is very durable.
The creme-de-la-creme of leathers: Full Grain Leather - Notice the beautiful pattern on this leather. The pattern is not uniform since it is actually naturally occurring marks on the hide. Also notice the backside (called the flesh side). The texture on this backside looks nothing like the picture above. This is because the fibrous hairy side has been polished to make it smooth.
From a business perspective:
PU leather is much cheaper to produce than real leather. The production is not controlled by the available supply of hides, not does it need the critical timing of handling real leather. Real leather needs different processing steps such as cleaning, soaking, tanning and other post processing steps.
When it comes to real leather, price is determined by the quality and quantity of raw material (hides) available. The tanning process also dictates the cost. Some processes are more expensive than others. The most expensive leather processing technique currently in use is vegetable tanning, which produces leather from real hides using natural tannins found in tree bark and other plant sources.
Items made with PU leather are much more cheaper than those made with real leather. These are mass-produced items sold at steep discounts, and having a short shelf life. Needless to say, these have a higher revenue potential than real leather goods.
From a buyer’s perspective:
Items made with PU leather can look like real leather, especially from a distance. But when you touch a bag made with PU leather, you will immediately notice a plastic, somewhat sticky feel which is not present in real leather items. The smell will also be distinctly plastic.
You can find PU leather products with different types of patterns imprinted on them. Pebbled, textured, crocodile print etc. But underneath this pattern is a fabric backing.
The low price of an item made with PU leather comes at the cost of a short life span. The biggest problem is that the item might be very well made, but it starts peeling off in a year or two, rendering a very well made item completely useless.
Leather goods made with real leather last much longer. They also look more ‘real’ or earthy, since they use a natural material. Real leather has grain and pores, making it breathable, unlike PU leather. However, like mentioned earlier, leathers are made with many different finishes. It is full grain leather that is usually the one that looks and feels most natural to touch.
From an environmental perspective:
Leather, whether artificial or natural, requires processing to create, and therefore any type of leather has a carbon footprint associated with it. In terms of sustainability, real leather lasts longer. Vegetable tanned leather is the most eco-friendly of all types of leather since it uses natural materials while tanning and items made with such leather can last decades. Chrome tanned leather (whether full grain or split leather) uses toxic chromium salts during the manufacturing process, which pollutes the food chain. And PU leather is made using petrochemicals which pollute the environment. Moreover, PU leather products have a short shelf life, and end up in landfills 6 months to 2 years after use.