Physical and chemical changes can be distinguished based on whether new substances are formed. A physical change alters a substance's physical properties but does not create new materials, while a chemical change produces one or more new substances through chemical reactions. Examples provided demonstrate that rusting of iron, burning of magnesium, and reactions of copper sulfate are chemical changes, while cutting of paper and melting of ice are physical changes. Crystallization is identified as a physical change that forms pure substances from their solutions.