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AZW is a renamed MOBI, Amazon will change the file extension when a book downloads from their server (and probably has their DRM).
AZW3 is a new, Amazon-developed format which is essentially an EPUB in a binary Palm Database wrapper.
Newer Kindles can read either format, but you may have to tell calibre that yours can. By default calibre's Kindle Touch/PW1/PW2/Voyage/Touch 2 driver is backwards compatible with the Kindle Touch's earllier firmware releases that didn't support AZW3 (but later updates fixed that).
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