I see two techs, one lets you "raze system" the other lets you "pillage system". From the description of pillage, it sounds like it deconstructs the system for profit... why would you ever research the more expensive raze system tech if that just destroys a system for no profit, when you can destroy it & profit?

Am I mis-interpreting these techs? What exactly do they do?

Razing a system will completely destroy the system, pillaging will only destroy the improvements.

Raze is not quite an upgrade of pillage. Pillage destroys all improvements for dust, raze destroysall improvements and removes all inhabitants giving you a colony ship. the system now belongs to no one and is shown grey on the map. In order to use the system again, you(or your enemies have to send a colony ship.