When to use "зарплата" and when "жалование"?
The word жалованье is really outdated although you can use it in humorous way. The word зарплата is contemporary but not official one, it should not be used in legal or official documents - use the word оклад instead.
There is another word, получка, which means the fact of getting the pay in hands. Back in a day when получка was happening at fairly large enterprises (state steel factory, for example) that usually meant sharp increase in alcohol sales in vicinity.
I believe "жалованье" (not "жалование") is obsolete these days, so use "зарплата" unless you're writing an historical novel.
The words have different connotations too. Жалованье comes from an act of charity or benevolence; зарплата (заработная плата) is pay for work performed.
As others have already noted the word жалованье is outdated. Historically this word was officially used in pre-Soviet Russia (in nineteenth cent as a name of a salary of people that worked for government (officials, soldiers, police, etc.), so even today most people couldn't call their wages as 'жалованье' anyway. During early Soviet times this word was also used by people that used to it (you may encounter it when reading Bulgakov novels, for instance), but it was no longer officially used.
Talking about Bulgakov we can also recall the "Иван Васильевич меняет профессию" movie when one of the characters says "Жалую тебе шубу с царского плеча". This shows that жалованье could be not only in monetary form, but also in form of different gifts and preferences. Also this is the phrase that most people associate with word жалованье nowadays.
As for зарплата - this is informal short form of official term заработная плата. This is a general term that describes monetary reward for an employee for the job performed, but the 'legal' name for such reward may vary depending on type of a contract. For example оклад usually means that an employee receives fixed payment every month, почасовая оплата if an employee's reward is based on how many hours they worked etc.