"in town" omits which town you are in. It implies that you (or the subject) is in the same town as the listener. "in the town" suggests that you may want to specify which town you are in.

As Tristen has already mentioned "in town" actually means "in the town". Dialogue: Person A: Let's go out for dinner. Person B: Where should we go? Person A: How about in (the) town? (=let's get dinner - in the town that we are both in). "in town" is common in Australian English, I would consider it slang, it isn't used in formal situations.

Difference? Little. . I guess, "the" as a definite article, means you must know which town we are talking about. . So, looking for differences: I cannot see how to use "in town" meaning some other town. While "in the town" could easily mean some other town. . The next county over has more people in the town, but fewer over all than this county. The next county over has more people in town, but fewer over all than this county. <-- slightly less natural sounding (to me) We live a little out of town. In town, the there is more to do in the evening. We live a little out of town. In the town, the there is more to do in the evening. <-- slightly less natural sounding (to me) . In towns, people tend to earn more. Ok, without explanation. In the towns, people tend to earn more. Ok, without explanation. <-- sort of needs some explanation, understanding, like, for example Overall these rural and urban areas have about the same number of jobs, but In the towns, people tend to earn more.