Whats the difference between yama and san in the title of a mountain? 富山 and 富士山 Toyama and Fujisan for example? Is one simply a mountain and the other a volcano?
According to Jisho.org the Kanji in question (山), has only one meaning: Mountain. That has no distinction between a volcano (which is written 火山) or a regular mountain.
As @Leebo has pointed out both readings (やま and さん) are used in mountain titles. I personally would take that to mean that there isn't really a dramatic difference between the two. The difference in reading may stem from how kanji got integrated into the Japanese language, but that is mostly conjecture on my part.
The only way to know which reading is correct is experience. Usually one will sound better than the other.