Translation:What difference is there between a village and a town?
Think of "welk" behaving like an adjective and "wat" behaving as noun. Since you are asking for more information regarding the difference, you have to use "welk." "Wat verschil" could not make sense since it is two nouns next to each other (or at least how I am assuming it working if it is like German).
"Welk" does not translate quite that directly into English "which." "Which difference is there between a village and a town?" is not good English. "Which" in English means that you are asking for one of two or more possibilities. You could say, "Which difference between a village and a town is the most obvious?" because you are asking for the one difference of multiple differences that fits the identified quality (most obvious). But if you are asking someone to identify only one thing (even if it is a lengthy explanation in multiple parts), you can't use "which."
"What" and "which" sometimes seem interchangeable, and we can get away with interchanging them without losing much meaning, but they're really not.
What shampoo do you use? Which shampoo do you use? These sentences have a subtle difference in meaning. The latter implies that there is a finite set of possible shampoos, and the questioner wants you to identify the one on the list that you use. The former implies that there are infinite shampoo possibilities, and your answer may be a shampoo that the speaker did not even know exists. But as a practical matter, we use them interchangeably because they each yield the same result.
If you are asking whether you can translate 'dorp' as 'town' rather than 'village', I don't think you can. There are considerable differences between towns and villages (size, population, administration, infrastructure...). http://www.differencebetween.net/miscellaneous/geography-miscellaneous/difference-between-village-and-town/ Or did I misunderstand the question?