If an area of a building is being altered, but its use does not change, then it is an alteration. For example, a floor in an office building is being remodeled to provide a more efficient plan by eliminating many small offices and create open office areas, then that is an alteration.
If an area of a building is being altered, but its use of space will change, then it is a change of occupancy. For example, a big box store (Group M) is being converted into a K-12 school (Group E). Even though it is an alteration, the change of use makes it a change of occupancy and is only subject to the change of occupancy requirements (which typically are a bit more restrictive than a Level 3 Alteration).
A change of occupancy does not necessarily require a change in the occupancy group. For example, A restaurant (Group A-2) may change into a nightclub (also a Group A-2); however, the application of the code changes because of the change in use (more occupants for nightclubs, means larger means of egress and more plumbing fixtures, and may require a sprinkler if one did not previously exist).
Some portions of a building may have alterations with no change in use (Alteration), while other portions of the same building will have alterations that do have a change in use (Change of Occupancy). Each area with a different type of work classification is subject to the requirements of only that work classification.