Yes, in fact, the words lay and lie have totally different meanings. In American English, however, the distinction is slowly being lost, so that you hear others say, “The book is laying on the table,” or “I’m going to go lay down,” when in fact both sentences properly use lie. You, however, are going to be smarter than to confuse the two!
According to Merriam-Webster’s Collegiate Dictionary, the word lay, in this sense, means “to put or set down.” Lie, on the other hand, means “to be or stay at rest in a horizontal position.”
How does this translate to literary use? Basically, lay is the act of setting down. If you are setting down a thousand unmarked bills on the table, then you are laying that cold cash down. If you are setting your magic wand down on your altar, then you are laying that wand down.
What about that sentence I used earlier – “I’m going to go lay down”? Well, simply put, this usage is incorrect because you didn’t specify what you are laying down. In order for this sentence to be correct, you must finish it with an object: “I’m going to lay my tired old bones down,” where bones is the object.
Lie, on the other hand, does not take an object. Thus, after a snowball fight, the snowballs are lying around. Lying takes no object, and the snowballs are already at rest in this sentence. And after you’ve won the snowball fight, you probably want to go lie down. Again, lie takes no object.
Essentially, if you are in doubt, consider whether you are setting down an object. If you can add an object after “lay down,” then you’re good to go. On the other hand, if you can’t add an object, then use lie.