Use 'demarcate' when referring to actual lines that separate spaces, such as borders on a map. The fence demarcates the boundary between the two properties.
Pro Tip 2/3
Abstract Limits
'Demarcate' can also be used for non-physical boundaries like rules or guidelines. The agreement demarcates the responsibilities of each party.
Pro Tip 3/3
Formal Usage
Despite its varied settings, 'demarcate' tends to appear in more formal or technical contexts. The treaty demarcates the fishing zones of each country.