The main difference is that the M1 cards will do major and all Layer 3 related features and operations. The M2 cards will give the data center the expansion to run 40G and 100G infrastructure.
The initial series of line cards launched by cisco for Nexus 7000 series switches were M1 and F1. M1 series line cards are basically used for all major layer 3 operations like MPLS, routing etc, however, the F1 series line cards are basically layer 2 cards and used for for FEX, Fabric Path, FCoE etc. If there is only F1 card in your chassis, then you cannot achieve layer 3 routing. You need to have a M1 card installed in chassis so that F1 card can send the traffic to M1 card for proxy routing. The fabric capacity of M1 line card is 80 Gbps. Since F2 line card don’t have L3 functionality, they are cheaper and provide a fabric capacity of 230 Gbps.
Later cisco released M2 and F2 series of line cards. A F2 series line card can also do basic Layer 3 functions, however, cannot be used for OTV or MPLS. M2 line card’s fabric capacity is 240 Gbps while F2 series line cards have fabric capacity of 480 Gbps.