Western readers tend to translate both words as ‘god’, and miss the distinction on which half the mythology runs. In this universe, a shen (神) and a xian (仙) are different kinds of being, arrived at by opposite roads.
Gods are appointed. The celestial world is a bureaucracy, and a god is a civil servant of heaven — the God of Thunder, the City God of a walled town, the Dragon King of a lake, the Kitchen God who reports on each household to heaven once a year. Many gods were once humans: an exceptionally virtuous or loyal official is, after death, appointed to a post in the invisible administration, exactly as the emperor appoints magistrates in the visible one. Gods have jurisdiction, duties, and performance reviews. They can be promoted — and, in the stories, demoted, sued, and outwitted.
Immortals are self-made. A xian is a being — human, usually — who has escaped death not by appointment but by cultivation: centuries of meditation, breathing arts, alchemy, diet, sexual discipline, or the simple refusal of worldly attachment, until the body is refined into something that no longer ages. Immortals hold no office. They live on mountains and islands, ride cranes, turn up as ragged beggars and drunken swordsmen, and delight in ignoring the hierarchy the gods maintain. Where the god is the establishment, the immortal is the dropout who beat the system.
The two classes eye each other warily. Heaven periodically tries to recruit famous immortals into office — the Jade Emperor offers posts; the freer immortals decline. The greatest of them, like the Eight Immortals, become folk-heroes precisely because they answer to no one: Lü Dongbin with his demon-slaying sword, Iron-crutch Li with his gourd of medicine, drunken, ragged, magnificent.
For the story-reader, the distinction is a compass. If a supernatural figure behaves like a magistrate — holds court, keeps ledgers, demands offerings, enforces jurisdiction — it is a god. If it behaves like a wandering eccentric with absurd powers and no visible job — it is an immortal. And the tension between the two, the office and the mountain, is one of the oldest arguments in Chinese civilisation, wearing a mythic costume.