dhagler explained it very well. A fretless can also deliver some very distinct effects when you incorporate slides, note bending, or vibrato in your technique. If you get a chance, listen to Jaco Pastorius recording of "A Remark You Made" Actually, it may be Weather Report or Jaco as a solo artist, I can't recall which. You will clearly hear a tonality that people refer to as "mwah". I haven't heard of anybody who can get that sort of a tone from a fretted bass.
Personally, I like the sound of a fretless on ballads and slow gospel songs, so I've been playing my fretless a lot more at church the past few months.
Peace,
James