We are always asked which is the best to opt for and at the end of the day it is always down to personal preference. There are pro’s and there are con’s for both types and generally speaking both can perform just as well as the other. The trouble with in ear headphones is that they do not interact with the Pinna or the outside of the ear, this part of the anatomy helps the brain to decipher various extra information such as the direction of a sound and acts as an acoustic filter to enhance the midrange such as human speech. When using in ear headphones the Pinna is not used so the directionality and realism is not as defined as it would be by using an on ear headphone.
There are sometimes comfort issues with in ear headphones too with prolonged listening 
becoming hard work and can begin to make listening a chore, especially with slightly cheaper in ears. I have found that most of the ear canal headphones have been the most comfortable with brands such as B&W offering a unique loop system to make the fitment as comfortable and secure as possible. Other companies such as Sennheiser and Musical Fidelity also offer in ear headphones that are comfortable to wear after prolonged listening. I also find that with in-ear canal headphones it is possible to lay on your side without the earphones getting in the way too much. In regards to specification, the latest IE800 earphones from Sennheiser have a frequency range of 5Hz to 46,500Hz which outperforms most on ear headphones especially at the £600 mark. The in ear headphones are ideal for portable use due to their size and for being out and about in public they are not too vulgar nor do they look too big on top of your head. Many would prefer the discrete nature of in ear headphones than to walk around with Dr Dre Beats on their head for all the world to see.
Generally speaking on ear headphones are capable of outperforming in ear headphones in terms of realism and accuracy. They are not always the best for portability but they make up for it in the space around the instruments and the accurate 
soundstage they offer. There are a few types of on ear headphones; circumaural and supra aural. Circumaural headphones by their name encompass the ears and seal against the head. This helps to alleviate external noise, however due to their size they can be quite heavy and steps are taken by companies to try and reduce the weight and make them more ergonomical. The Sennheiser Momentum is a circumaural headphone that has been specifically designed to be as lightweight as possible for the wearer. Supra-aural headphones are slightly different in that they clamp the ear, they are normally lighter and less expensive. The fact that they clamp the ear means that your ear can often start to sweat after prolonged listening and steps are taken by some manufacturers to make the earpads breathable to reduce the heat. Headphones such as the B&W P5‘s use sheep leather for their earpads as it is softer and breathes better. Although offering better realism and a slightly more open sound than in ear headphones they are not the most portable. The HD800 from Sennheiser is 330g and you really wouldn’t want to be walking around London with them attached to your head. 🙂
So there are pro’s and con’s to both and it really is a case of personal choice. Both can offer the same specification but only the on ears can offer the extra realism.