What are the pros and cons of fs.createReadStream vs fs.readFile in node.js?

I'm mucking about with node.js and have discovered two ways of reading a file and sending it down the wire, once I've established that it exists and have sent the proper MIME type with writeHead:

// read the entire file into memory and then spit it out

fs.readFile(filename, function(err, data){
  if (err) throw err;
  response.write(data, 'utf8');
  response.end();
});

// read and pass the file as a stream of chunks

fs.createReadStream(filename, {
  'flags': 'r',
  'encoding': 'binary',
  'mode': 0666,
  'bufferSize': 4 * 1024
}).addListener( "data", function(chunk) {
  response.write(chunk, 'binary');
}).addListener( "close",function() {
  response.end();
});

Am I correct in assuming that fs.createReadStream might provide a better user experience if the file in question was something large, like a video? It feels like it might be less block-ish; is this true? Are there other pros, cons, caveats, or gotchas I need to know?