Probably one of the most critical elements in the life of any artist is the demo. Careers can be won or lost by the demo. Very few managers, agents or A&R people will venture out to see any artist live unless they've first heard a demo that caught their attention. And it can be more difficult to get live shows without a demo of at least a couple of songs that a promoter or club owner can hear first.
Do I Want To Record A Demo Or An Album?
It really depends on a lot of factors, the primary ones being:

• Your overall plan for your career
• How much money you have for recording

The overriding factor is money. If you have very limited financial resources, then you are most likely limited to making a lower-quality, demo-style recording. But this doesn't mean that you can't release it on your own label or a small independent. However, without spending a minimum of several thousand dollars, your tracks are probably not going to be professional enough to qualify as a serious album-- they're probably not going to get past the local show on your local radio station, and it is very unlikely that a serious label will want to release or re-release them. You should always try to make the best quality recordings your resources will allow. No matter what the purpose of the recording is, a better sounding demo represents your music better, giving both fans/consumers and the music industry a better idea of what you are about. If you are approaching labels with demos, the closer those demos are to masters (i.e. album-quality recordings), the more likely you are to get a sympathetic hearing. In fact, if your demos are recorded well enough, a major label might pick up those demos and release them rather than re-record them. And since the label won't have to spend additional money on re-recording, you are in a better position to negotiate a financially favorable deal. Creed sold millions of albums (and made a lot of money) this way. Their label Wind-Up picked up their independent demo/album, which was recorded very cheaply, re-mixed it, and the rest is history.