What is the difference between policing and shaping? (they seem so similar). When should one use policing and when should we use shaping?

Traffic policing takes a harder view of traffic that violates the configured allowable amount of traffic; what this means is that traffic that exceeds a traffic policing limit is typically dropped.

Service Provider will use Policing to make sure Customer should not use more than defined Bandwidth.

Traffic shaping, on the other hand, takes the softer approach by attempting to “smooth” out traffic that violates the configured limit by buffering it and attempting to send it when available bandwidth exists.

Customer Edge devcies uses Shaping so that they should send traffic according to the available bandwidth.