Traditional software wallets such as Decrediton store your private keys in a file on your computer. A hardware wallet is a device that stores your private keys on a dedicated piece of hardware with the intention of providing an additional level of security. Hardware wallets typically do not connect directly to the internet, and so they are often considered more secure than software wallets.
It is not currently possible to participate in Proof-of-Stake using hardware wallets.
Below is a table of hardware wallets that support Decred (last updated 2020-08-24).