The main differences are:
1. The Nexus 5 has a 1080p 5"(actually 4.95") display, the Nexus 4 has a 720p 4.7" display.
2. The Nexus 5 has 16 or 32gb storage, the Nexus 4 has 8 or 16gb storage (both non-expandable).
3. The Nexus 5 has a snapdragon 800 quad-core running at 2.3Ghz, Nexus 4 has snapdragon s4 quad-core running at 1.5Ghz.
These are the primary differences, the nexus 5 has an (allegedly)better camera and sound, and also has LTE, though LTE can be enabled on the Nexus 4 with a little modding. The display and the storage are probably the more noticeable differences, apart from the physical appearance, as they are both very fast phones with huge dev support. The performance increase of the N5 wouldn't really be noticeable by the average user, plus the amount of support for the N4 would provide excellent roms/kernels for a few years at least.
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