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On one hand you have classes with their own assortment of abilites predetermined roles and limited choice of direction with stat distribution. I'm sure you have played a MMORPG like this(WoW EQ2,AOC,WAR, etc) to know what it is.
For the most part it is balanced. Classes are relatively equal next to each other in power and each have their own special thing that sets one apart from another.
Skill Based (Classless)
On the other hand you pretty much make what you want. You can choose skills and abilities that define what you can use and your role in combat or otherwise. Your uniqueness comes from your collective whole of skills. They could be focused like a more traditional class or composed of more untility skills and abilities.
Balance is very difficult to achieve. With hundreds to thousands of possible combinations of skills it takes a very long to time to balance everything. There will be several skill builds that will out match other ones but in a group enviroment players could take advantage of more specialized builds.
Trying to design a skill based mmo has been a F'n pain in the neck even though the vision of it sounds awesome.