Both algorithms look at all nearby properties that are within 20% of the square footage, and 10 years of the year built of the subject property.  The algorithms will always try for the best match in terms of bed/baths, lot size, number of stories, etc.

The difference is in which properties are used for the calculation of the Estimated Price.  ARV-Distance pulls all properties within 1/2 mile, and chooses the comps that are closest to the subject property, and have sold more recently.
ARV-Subdivision will pull all properties within 1 mile and will put priority on choosing comps that are in the same subdivision.

An MLS Deal Finder search uses the ARV-Distance algorithm.