In the end, both do the same thing. There are some differences in code: Web Services doesn't add a Root namespace of project, but Service Reference adds service classes to the namespace of the project. The ServiceSoapClient
class gets a different naming, which is not important. In working with TFS I'd rather use Service Reference because it works better with source control. Both work with SOAP protocols.
I find it better to use the Service Reference because it is new and will thus be better maintained.