What is the difference between php and html file extensions?

I am having a .php file with the following code. While I am changing the extension of the file as .html then also it is behaving in the same way. Can anyone explain the following:

1. Why the file is behaving in the same manner with both the extensions?
2. What is the difference between the .php and .html file extensions?

.php file

<html>

     <head>
          <!-- some html code -->
     </head>

     <body>
          <?php echo "Hello!" ?>
     </body>

</html>