The category "fats" includes both fats which are solid at room temperature, e.g. butter, margarine, and lard, as well as fats which are liquid at room temperature, usually called oils, (e.g. canola oil, olive oil). The terminology applied to fats is based on the chemical structure of their molecules. Fats and oils belong to a group of biological substances called lipids. Lipids are biological chemicals that do not dissolve in water. Fats differ from oils only in that they are solid at room temperature, while oils are liquid. 

All fats perform a myriad of functions in a baking recipe, some better than others.  

What's the difference if I use lard, shortening or oil when a recipe calls for butter? 

Solid fats and oils share a common molecular structure, but when used in a recipe, they fulfill different functions. The milkfat in butter is what gives this fat its unique properties. In baked goods, it contributes tenderness, structure, color, flavor and flavor release. 

Vegetable oil does not act as a shortener because it is a liquid and won't cream with crystalline sugar in the same way as a solid fat. Oil will tenderize a recipe, so it's good in quick-breads, but doesn't contribute much flavor where the ingredients do. It reduces dryness and enhances flavor, and has the same number of calories and fat grams as butter, even though it has less saturated fat. 

If you have dietary restrictions that make it necessary for you to reduce saturated fats in your diet, you can substitute a butter-margarine blend, such as Land O Lakes Country Morning in sticks, not whipped or tub versions. The recipe won't taste the same if you use margarine. 

The fat content and whether it is a plastic (solid) or liquid fat, and has not melted before you put it in the oven, helps influence whether or not you get a flaky pie crust, tender cake or chocolate chip cookies that don't spread much when baking, etc.  Lard and butter tend to behave a bit differently and they don't taste the same. Butter has water in it, so if you make a pie dough with shortening or lard, the dough will be flakier. 

When choosing which fat to use in a recipe, consider these different characteristics: 

1. The first is flavor. In general, butter and unrefined oils provide the most flavor. Unsalted butter is my favorite choice for baking because I like it's flavor, but some use Butter-Flavored Shortening instead of butter and are quite happy with the results. Unrefined oils are oils extracted from the nuts, seeds, etc. without the use of either heat or solvents. Extra virgin olive oil and the nut oils (walnut, hazelnut, etc) are the best known examples. Refined oils are usually bland in taste and are chosen for one of the reasons listed below. 

2. The second characteristic is texture. This is especially important in baking, where fats are required to produce a fluffy or flaky and tender product. In baking, the fat (usually either butter or vegetable shortening like Crisco) can act both as a leavening agent (causing the dough to rise) and as a tenderizer. In pastries such as cream puffs, the fat particles melt in the heat of the oven, producing steam that leavens. In pie pastry, the same melting action produces a flaky crust. In cakes, where both steam and often carbon dioxide (produced by baking soda and/or powder) act as joint leaveners, it is necessary to have well-creamed fat to create empty cell pockets. These pockets hold the steam and CO2, allowing the cake to rise.

Most bakers are very familiar with traditional, solid fats, also known as shortenings such as butter, margarine, and vegetable shortening. In general, solid fats are almost always used for baking, as oil will tend to collect in one place and not disperse throughout the batter, producing a grainy texture. Shortenings coat the flour proteins, reducing their contact with the moisture in the recipe, and shortening the length of the gluten strands when the flour is stirred with that moisture (that's why they're called "shortenings"). 

In traditional baking, such as when making a Buttercake recipe, the fat is creamed together with sugar in order to incorporate air into the batter, resulting in a baked good with a fine, aerated texture. Larger volumes of air can be incorporated into the batter with proper aeration. Oils, can not be creamed. When a shortener is removed or reduced, it increases the chances that the end product will lack flavor and be tough. (Follow my Healthy Baking tips to prevent this). 

Fats' ability to tenderize comes from dispersing the fat particles, which allows them to coat the starch molecules. This coating prevents too much gluten from forming, thereby keeping the pastry from getting tough, ("gluten" is the protein that provides structure for baked goods). The only time oil is usually used in lieu of a solid fat in baking is for quick breads or cakes. Here, stirring is kept to a minimum to prevent gluten from forming and denseness is often a desired quality.

3. The third element to consider in choosing a fat is the heat points, of which the "Smoke Point" is the most important. Smoke point defines the temperature when a fat begins to smoke and develop an acrid odor and off flavor. Smoke points are important to know for sauteing or frying. For deep fat frying, especially, it is important to use a fat with a higher smoke point. Deep fat frying is performed most effectively at approximately 375 degrees. If you fry at a much lower temperature, the food does not develop an immediate crust upon immersion, and will absorb the fat and become greasy. If you fry at a much higher temperature, the outside will burn before the food is cooked through. 

I have attached a chart, Smoke Points for Cooking Oils for reference. Remember, however, that the smoke point of any oil decreases with use; do not use the same oil more than three times. Other heat points for fats include "flash" and "fire" points at 600 and 700 degrees, respectively. At the flash point, there are tiny wisps of flame; at the fire point a fire is blazing. Do not put out an oil fire with water; it will spread the fire. Rather, smother the fire with a tight-fitting lid, suffocate it with baking soda, or use a specially formulated fire extinguisher.

Butter's primary drawback is its low smoking point, limiting its use in sautéing for only brief periods. To sauté with butter, two adjustments are possible. First, combine the butter with a bland oil that has a higher smoke point, like canola oil. This increases the smoke point while leaving a buttery taste. Otherwise, use clarified butter, (“ghee” in India). Clarifying butter removes the milk solids, which burn before the fat. A method for clarifying butter is described at the bottom of this column.

4. Finally, consider price. In general, unrefined oils used for flavor purposes are pricier than the bland oils largely used for cooking. You should buy unrefined oils in small bottles not only to minimize cost, but also because: 1) a little amount adds a lot of flavor, 2) these oils go rancid more easily than processed oils, and 3) since unrefined oils have low smoke points, they are inappropriate for most cooking purposes. In general, use the more expensive, unrefined oils for flavor, and the less expensive for cooking. 

Regarding storage, all fats will eventually go rancid; however, unrefined oils and unsalted butter will go rancid earlier. To keep fats as long as possible, limit their exposure to light, moisture, and heat; a refrigerator is a good storage place. Do not worry if the oil gets cloudy or firms up; it will clear and liquefy once it comes to room temperature. For oils that have been used for deep-frying, strain and store the oil in either its original container or in a clean glass jar.