Currently, only a few people can make collections (mostly Medium employees and a tiny number of trusted testers — if you are interested in becoming one of those, I can chat with you about it). Collections and publications are separate things, and although I don’t want to mandate their only purposes, the best way to think about a collection is to imagine a curated group of stuff about a topic. Posts can go into multiple collections, for example: so I might want to include this in a collection called What Mediumites Are Worried About and you might want to put it in one called Things I Ask Medium (those would be weird collections, by the way, but I hope you get my drift). You can even put stuff into a collection that’s not posted on Medium to tell a more interested, curated story.
Publications are more hubs for posts: they are focused on creators in many ways and are more powerful (and usually more work) than collections. I see a future where collections are used far more widely than publications because they are more lightweight, but that focus makes them have a very different purpose from publications.
Right now, you’ll probably see collections as the best way to discover new and interested stuff each time you open your Medium app, whereas the publications you follow will continue to be your standby reading favorites for certain topics that you are passionate about.