The Cancelled option should be used when also generating a Cancelled instruction for paperless direct debits.

Below is an explanation on each of these options:

Cancelled
With a status of Cancelled, a recurring gift template becomes disabled and you cannot apply or generate any further transactions to the recurring gift template. You can manually select a Cancelled status after the cancellation instruction record (or OC instruction record) is sent.

Terminated
When you change the status of a recurring gift to Terminated, the program disables the recurring gift template, and you cannot apply or generate any further transactions for the recurring gift template. A Terminated status can have a negative connotation. Typically, a recurring gift is terminated if the constituent chooses to stop donating recurring gifts before fulfilling the promised amount.   For example, a constituent promises to donate a recurring gift every week for the next three years, then phones after a year to tell you he will no longer make donations to your organisation. You can change the status of his recurring gift template to Terminated to indicate the constituent stopped donating gifts before fulfilling the three-year agreement.