The project sponsor is the person who pays for the project. Because he or she is paying for the project, they get to decide on the project scope, schedule and budget. They’re the ones really taking the big decisions. The project manager makes sure things get done. The project manager takes the sponsors decisions on the scope, schedule and budget, and does her best to deliver what’s required. The project manager does not take decisions as to which features get developed, or how long the team has to do the work. That’s the sponsor’s job.
Let’s say your team is the crew of a sailboat. In this case, the sponsor that would be the captain decides where the boat goes, and when it should arrive. The sponsor also decides how big the crew will be. These decisions are transmitted to the project manager, who organizes the work shifts, works out an itinerary, and does everything in her power to motivate the troops and get the boat where it’s expected to be, when it’s expected to arrive.
If something happens and the project manager realizes that the boat can’t reach its destination on time, she takes that problem to the sponsor, who decides what to do about it.