If there are two overlapping control volumes in the geometry "add frozen" will create it as two different entities. Generally, if we don't remove the overlapped control volumes it will create overlapping mesh when we generate the mesh. But "add materials" just makes everything a single entity. Please also check the "boolean" operation in Ansys on YouTube you will understand it better.
A part from what Arun Govind Neelan said, Add frozen can be considered as changing the domain from solid to fluid domain in case if you want to simulate heat transfer in a fluid flow.
Thank you All for well explanation, while, during design which one you recommend to get quality mesh as well as accurate solution "Add material or add frozen.