Website about binaural recording. I'm surprised that their hasn't been more of a binaural renaissance in this age of headphones. Short version of the difference between stereo and binaural: binaural relies on two totally separated channels (like you get with headphones); stereo depends on a certain amount of crosstalk, i.e., to get stereo imaging both ears need to hear both channels. The left channel is stronger to the left ear but it still hears the right & vice versa. If your speakers aren't set up right & you aren't sitting in the sweet spot (the optimal spot for the crossing over - L to R & R to L - of audio channels) then you don't get the stereo imaging.
The description sounds kind of arcane, but if you listen to a good stereo recording on a good playback system properly set up you can tell immediately. It's directly analogous to looking at a stereoscope: when you get it in the right spot & the image becomes 3-D you can't miss it. Stereo & binaural are just two different ways of trying to recreate how we hear sounds with two ears, the slight differences in time & volume & overtones registered by each ear tell us where the sound emanated.
Binaural enjoyed a brief vogue in the late seventies (IIRC my copy of Lou Reed's Street Hassle is binaural) when headphones were popular.
The Firesign Theatre's albums are in stereo, not binaural, but they're totally made for headphone listening. Aside from being really funny the production is astonishing, and all the more so for being totally organic to the albums. A lot of late sixties/early seventies production is kids playing with new toys--much as I love Hendrix even his panning all the way to the right and then whooshing back to the left gets old real fast--but Firesign makes those audio tricks integral to what they're doing. Voices come from a distance or are filtered in a certain way because it comes from the plot. And a lot of it is nearly impossible to hear without headphones, including one of my favorite bits:
Prosecutor/auctioneer (loud foreground): How much do I hear?
Guy from the back of the courtroom (barely audible): That's metaphysically absurd, man! How can I know what you hear?