Because of the regular structure of typical Latex documents, it's feasible to write a diff-like program that looks at the two Latex source files and creates a compilable Latex diff output where additions and deletions are delineated using macros. With the appropriate macro definitions, you can make these appear as appropriate markup (inline, with changebars) in the compiled diff document.
There are two programs I know of on CTAN that do this, both of which are Perl scripts:
latexdiff, which is the more widely used, and has support for automatic revision acceptance and version control;
texdiff, my preference, which is less sophisticated and I find more predictable. texdiff doesn't try to insert Latex code into the preamble, which means you have to do this yourself, but which means it is more convenient for multifile documents, and for when you want to handle the insert/delete markup yourself.