It's a bit more complicated because itch.io works with a tier system.
If your game is free without any extras, then yes, pay what you want is exactly the same as a donation and I dare say that the vast majority of people use this form.
So don't feel bad, if a game is free and asks if you want to pay for something, it's actually a donation.
This system also allows you to have a paid game together with the free demo on the same web page.
If you don't pay anything, you can only download the demo.
I've seen a few games that do this, but not many.
It may also happen that the full game (not a demo) is free or costs a minimum price and on top of that price you can add extra content, for example additional animations, extra levels, etc.
This last example is more similar to the DLC model that stores like steam offer.
In summary, pay what you want, it is more powerful than just a donation system and for the same reason it can be more confusing.