A servlet can be a webservice.
A servlet simply waits for an HTTP request and responds to it.
A Web Service request is a particular type of HTTP request, It is usually a post request that sends XML. The webservice (which can be a servlet) responds by sending some XML back. As long as the framework on each end understands the layout of the XML (
SOAP, WSDL, etc..), Web Services can be used to allow programs on different machines, written in diffent languages, running on different platforms to communicate as if they were calling functions on a local machine.
The Web Service engine, Axis, is implemented as a servlet (or comes wrapped in one).
http://xml.apache.org/axis.