What is the difference? Ideally nothing, however in reality there does seem to be a noticeable difference.
Due to the nature of this topic, it is appropriate to first outline the working definitions I am using for both concepts and clarify this as my own personal understanding, and then recognise that others may see these differently. Therefore, the descriptions are consciously kept broad.
Khalistan
A modern nation-state led by and ran as per Sikhs principles as an attempt to establish a homeland for Sikhs.
The exact details of how it would work in terms of its governance style, economy and various other factors like borders are debatable and yet to be defined with any real (or realistic) consensus.
is one project attempting to outline the political-economic philosophy that a Khalistan may adopt, however the Azadism ideology itself can also be applied to other things outside of the Khalistan ambition as well.
Khalsa Raaj
Khalsa Raaj is a broader notion of establishing an environment in which those who choose to pursue Mukti (spiritual liberation) can do so free from oppression and tyranny, with the Guru Khalsa Panth taking responsibility to provide justice and security.
If the Raaj is a garden, the Khalsa is the gardener ensuring the weeds and pests of injustice are kept at bay, so that the flowers of spirituality can blossom freely.
It is less focused on modern notions of borders and gaining international recognition as a nation-state, and more about combatting injustice wherever it is. It is in this respect that Khalsa Raaj is de-localised, not limited to any geography or jurisdictions, and instead seeks out and fights the enemies of liberty wherever they are.
Khalsa Raaj is therefore established wherever a Singh plants their foot.
Satguru had conferred sovereignty on the Khalsa Panth, As well as on each individual Singh of that fraternity. Wherever a Singh sets his foot and settles on earth, He establishes his own self-reliant/autonomous sovereignty (Takht).
Sri Prachin Panth Prakash, Epidode 90
Recognition of this sort of Raaj stems from the mindset of each individual member of the Khalsa and the results they produce, and not through the UN or other exterior bodies.
Legitimacy for Khalsa Raaj was granted by Shahanshah Guru Gobind Singh themselves, the king of kings, whom also gave their status to the Khalsa directly. If the Khalsa recognises and operates in such a way to honor this mind state, then things like nation-states become mere decoration for them.
Under this understanding, Khalistan could be a stepping stone but is in no way the final destination of Khalsa Raaj. Nor does it have to be a pre-requisite…