inline is a compiler optimization for functions.

Such a declaration is a request to the compiler that it replace each call to the function with the fully expanded code of the function.

For example:

inline int max(int a, int b){
  return a > b ? a : b ;
}

int main(){
   int temp = max(3,5);
    etc....
}

The compiler could substitute the expanded code for max as shown here.

 
int main() {
  int temp;  
  {
    int a = 3;
    int b = 5;
    temp = a > b ? a : b;
  }
  etc.......
}

The substitution process for a #define macro is handled by the preprocessor, which is essentially a text editor.

The substitution process for an inline function is handled by the compiler, which will perform the operation much more intelligently with proper type checking.