The difference is that Sequence lets you choose a starting number each time, while Image # just provides a sequential number that always starts at the same number.
From The Filename Template Edit and the Text Template Editor in Adobe Help:
Numbering: Specifies three types of numbering: Import, which is a sequential number for each import operation; Image, which sequentially numbers each photo that has been imported into the catalog; and Sequence, which numbers each photo in sequence, letting you choose a new Start Number each time you import. (This element is not available in the Filename Template Editor when exporting photos.) Specify the starting Import and Image numbers in the File Handling tab of the Catalog Settings dialog box.