The visa on arrival is for those foreigners who want to make a short visit to Indonesia. It is valid for 30 days but can be extended for another 30 days (without the need to leave the country), hence you can visit Indonesia for a total of 60 days. The visa on arrival and visa-free entry facility overlap in terms of purpose of the visit (see below). Therefore, the main difference between both is that a visa on arrival can be extended once by 30 days.
Like the visa-free entry facility those who obtain a visa on arrival have the purpose to visit Indonesia for tourism, family visits, social purposes, arts & culture, to give speeches and visit seminars, join international exhibitions, attend a meeting held by head office or Representative office in Indonesia, or when in transit to another country. It cannot be used to take up employment in Indonesia. This would be an abuse of the visa on arrival (which is regarded a serious offense).
A VOA extension of 30 days is allowed upon payment of an additional fee, please note that the application for extension must be made prior to expiry of your visa.