Wikipedia
CryptoNote is an application layer protocol that powers several decentralized privacy oriented digital currencies. Conceptually, it is an evolution of ideas behind bitcoin: both are similar in some ways yet different in many others.
The main difference between the two technologies is that bitcoin (and most digital currencies) is less opaque than CryptoNote-based currencies due to the latter's blockchain being almost anonymous, contrary to non-Cryptonote blockchains. CryptoNote currencies use a distributed public ledger that records all balances and transactions of its in-built currency like bitcoin. Unlike bitcoin, CryptoNote's transactions cannot be followed through the blockchain in a way that reveals who sent or received coins. The approximate amount of a transaction can be known, but the origin, destination, or actual amount cannot be learned. The only information available is that the actual amount was lower than the displayed amount. The only people with access to the whole set of data about a transaction are the sender or receiver of the transaction and the person who possesses one or both secret keys.
Another significant difference is hash-based proof-of-work algorithm. Bitcoin uses SHA256, which is CPU-bound function. That means that participants (miners) are only limited by their calculation speeds, and it is relatively cheap to create an application-specific integrated circuit (ASIC) device, which will surpass an ordinary computer in hashes per unit of money. CryptoNote uses memory bound function CryptoNight, which cannot be easily pipelined.
CryptoNote code was not forked from bitcoin's, so it also has other different inner algorithms, like recalculating new difficulty level or new block size.