Drop-outs are words that suddenly seem to disappear from your memory. This often happens when you are regularly adding many words to your lexicon on a daily basis. You will have words that you are certain that you learned, but suddenly when you review them, you have no memory of having ever seen them. It's like they got squeezed out of your memory by other words, or by other elements of your memory.
Sometimes a word will not be a total drop-out. You will have some memory of some facet of it, but not retain an important relational structure that you had learned. For instance, I talked about the situation earlier whereby sometimes I will have a word just suddenly pop clearly into my head, but completely disassociated with any meaning. Maybe you will remember a word in this fashion, isolated from its meaning, when you had learned it pretty solidly and retrieved it multiple independent times in the past Or maybe you can only make a connection to a meaning in one direction; for example, from the target language to the source language but not in the other direction (after you thought you had solidly learned it). In this case, it will only be a partial drop-out.
Leeches are a different matter. They are the black holes of learning, the words you just can't seem to get embedded in your mind no matter what. There are several reasons a word may be a leech. One of the most widely discussed theories is that the material you are studying is poorly designed for that word. It may ask for too many associations. For example, sometimes a word has more than one meaning. Sometimes it has multiple discrete meanings, and those meanings are not grouped in ways that are common associations in your native language. It may be difficult for you to grasp the meaning. On occasion when this has been the case, I will make separate flash cards for the primary meaning(s) of the word and the secondary meaning(s) of the word, and then possibly consolidate them after I have learned both cards fairly well (of course, they can always become drop-outs at some point, and then become difficult again).
There is an excellent discussion of how to handle leeches on the Supermemo site, along with strategies for dealing with them. For those of you who are not familiar with Supermemo, it is one of the first spaced repetition flash card programs, created by Piotr Wozniak, and there is a lot of discussion about how memory works on there. You can really get lost there looking over the incredible repository of material on memory.
I subscribe to a sort of zen model. For every component of learning that you need to do something for, there is something that you need to just as strongly NOT do to accomplish the task. For every period that you spend learning, you need to have periods of rest and/or sleep, and these periods are just as important as the study. In my model, leeches are words that absorb the negative energy from the other words so that those words can be learned.
There is also more discussion of what to do with leeches on the Anki site. My thoughts on leeches are that when you are first learning, it is best to suspend leeches, as your learning will become more efficient without them. Since a small amount of material will occupy a large portion of your time, it is best to move on to learning that will be easier. Also, once you have moved away from whatever neural pattern you were experiencing due to the passage of time (another example of how NOT doing can enhance your learning), new patterns can arise that allow for easier learning.
However, once you get to the point where you have learned a lot of material and you are getting to more esoteric words, and there is more interference from other material after you have learned a large body of material, it is more difficult to drop leeches/ This is because almost EVERYTHING you will be learning can fall somewhat into the "leech" category, due to the fact that all the easier material selects itself out (because you have solidly learned it), and the fact that you will be working with more difficult concepts at this point. This phase usually arises after having learned several thousand words. At this point, you just have to accept that your learning will be harder. But in some respects, it can also be easier in some ways too, because you will have a greater understanding of roots and syntax in the target language.
Both drop-outs and leeches are probably a function of retrieval, not of storage. The material is in there somewhere, but the retrieval path has either not yet been completely constructed, or has been disrupted.