The authorization for model aircraft flight (at least in modern FAA theory--the document itself seems to be a notice to improve safety of a clearly extant and legal activity) is AC 91-57 (http://www.faa.gov/documentLibrary/media/Advisory_Circular/9...). It doesn't make a clear definition. It was written in 1981, so it may assume small, radio controlled, line of sight, limited capabilities, flown as a hobby, and perhaps imitating "real" aircraft; this is what model aircraft were then. However, it doesn't define anything in particular.

In Federal Register Notice 14 CFR Part 91 (http://www.faa.gov/about/initiatives/uas/reg/media/frnotice_...), they attempt some clarification, adding a line about "expecting line of sight" control, and leaning heavily on the "hobby" part as a clear distinction. This ruling kinda makes a hash of that, leaving undefined physical characteristics.

So in general it's fairly unclear. Another result of technology moving well faster than the speed of government. The FAA notes at the end of the CFR that it may in the future issue an authorization for unmanned vehicle "operations which do not qualify as sport and recreation, but also may not require a certificate of airworthiness". They may be encouraged to do this faster now.

(The fact that the clarification is in a policy notice is a major part of the ruling discussed here. Judge didn't think that was a good enough basis for the fine.)

Looks pretty grey

"There are already hobbyists that operate "drones" by any reasonable definition. The term in the hobby is "FPV" (First Person View) - you install a camera and a transmitter on your aircraft and pilot it from a first-person perspective using a monitor on the ground. The radios on these operate by line-of-sight, but the range is far beyond visual range. You can find plenty of videos on Youtube just searching for "fpv radio control" or variations thereof. Operation of these for recreational purposes is currently unrestricted in the US. This may also change."

http://boards.straightdope.com/sdmb/showthread.php?t=673706

It seems like you still have to have a chase plane[1], and the difference seems to be requiring approval for UAS as a whole system to use for commercial purposes[2]. Note in that second link that there is no size restriction for model airplanes, which I found interesting ("FAA guidance does not address size of the model aircraft.").

[1] http://www.faa.gov/news/fact_sheets/news_story.cfm?newsId=14... "Because UAS technology cannot currently comply with “see and avoid” rules that apply to all aircraft, a visual observer or an accompanying “chase plane” must maintain visual contact with the UAS and serve as its “eyes” when operating outside airspace restricted from other users." [2]http://www.faa.gov/about/initiatives/uas/uas_faq/#Qn1