Walking around Chinese cities and looking at signs at the gates of residential communities and notices posted to hotels and businesses, you will notice many different terminologies to describe different kinds of anti-coronavirus activities.
What do each of them mean? What, for example, is the difference between “隔离” (essentially, “quarantine”) and “观察” (“observation”)?
Talking to one person outside a hotel where people under "observation" were held, this is what they said: "Observation" is less stringent. "Observation" lasts 7 days. It applies to some people who have been through certain areas but haven't shown symptoms. A group of people who worked for the same company were put into the same hotel and were being "observed" for 7 days and were carrying bouquets of flowers they had been given when they got to the end of their stay. The hotels are specially used only for people being observed, and air conditioning is turned off. "Quarantine" applies either to people show show symptoms or who are coming from the most serious areas: Hubei province and Wenzhou city, among others.
Now there are different policies in place in different cities and different districts of the same city and different policies for different circumstances. The policies are changing over time, too. So the above is not a crystal clear answer, nor an answer that applies in all cases.
The word “观察” has also been used for periods of 14 days.