Terraza vs. patio
While both terraza and patio refer to outdoor living spaces, they differ significantly in their location, elevation, and level of enclosure. The choice between terraza and patio depends on whether the space is raised, open to a view, attached to a commercial establishment, or enclosed on the ground floor.
Terraza
The word terraza refers to an open outdoor space that is often elevated, such as a rooftop, a large balcony, or a raised deck attached to an upper floor. It is also the specific word used for the outdoor sidewalk or street seating area of a bar, cafe, or restaurant.
Tomamos un café helado en la terraza del restaurante.
(We had an iced coffee on the terrace of the restaurant.)
El apartamento del último piso tiene una terraza con hermosas vistas al mar.
(The top-floor apartment has a terrace with beautiful ocean views.)
En verano, mi familia cena todas las noches en la terraza.
(In summer, my family has dinner every night on the terrace.)
Han construido una terraza de madera para tomar el sol en la azotea.
(They have built a wooden terrace for sunbathing on the roof.)
Las sillas de la terraza están mojadas porque llovió esta mañana.
(The chairs on the terrace are wet because it rained this morning.)
Patio
The word patio refers to a ground-level outdoor area, usually located at the back of a house or enclosed within the interior walls of a building like a traditional courtyard. It is also commonly used to describe a school playground or a simple paved backyard.
Los niños están jugando con su perro en el patio trasero.
(The children are playing with their dog in the back patio.)
La casa tradicional andaluza tiene un patio central decorado con una fuente.
(The traditional Andalusian house has a central courtyard decorated with a fountain.)
Salimos al patio de la casa para hacer una gran barbacoa.
(We went out to the courtyard of the house to have a big barbecue.)
Mi abuela tiene macetas con geranios colgadas en las paredes del patio.
(My grandmother has pots with geraniums hanging on the walls of the patio.)
Durante la hora del recreo, los estudiantes corren y saltan por el patio de la escuela.
(During recess time, the students run and jump around the school playground.)
Summary
In summary, use terraza when talking about elevated spaces like large balconies, rooftops, or the outdoor seating areas of cafes. Use patio for ground-level backyards, inner courtyards enclosed by the walls of a building, or school playgrounds.