If I understand correctly, a live fish is a "pez" whereas one cooked or otherwise ready for eating (dead) is a "pescado."
So when exactly does this transformation take place - when the fish is caught, or when it dies? If a bear is standing in a river and catches a pez, does it become a pescado as soon as he's got it in his claws, or only after he kills it by biting it?
I think that "pescado" is the participle form of the verb "pescar", which means "to fish", so I guess that once you fish a fish it turns from "pez" to pescado".
Pescar: Sacar o tratar de sacar del agua peces y otros animales útiles al hombre
So the difference is not that the creature is alive or cooked, it is that it has been "harvested" from the sea/river/lake/etc. by human hand.
You could see a lot of dead fish on the sea shore and you would still refer to them as "peces", not as "pescados". Once a fish is cooked or ready to be eaten supposedly it has been fished first, so it is called "pescado".
Pescado: Pez comestible sacado del agua por cualquiera de los procedimientos de pesca.
Although Diego's answer is correct according to the D.R.A.E., in real life things are a bit more complicated. First, because Spanish pescado is primarily (or even exclusively) used as a 'mass noun' (pez, on the contrary, is always a 'count noun'). As a consequence, you will hear:
He comprado pescado (= I have bought [some] fish)
but not
*He comprado un pescado
even though, obviously, the seabass or whatever you've bought is a fish that has been fished (and is dead, etc.). What's more, 'pescado' remains a 'mass noun' even when preceded by the definite or indefinite article. Thus, at a restaurant, the maitre might tell you
Tenemos un pescado excelente (= We have excellent fish, N.B. not We have an excellent fish)
or
Les recomiendo el pescado (= I recommend you the fish)
which, of course, does not mean that he is recommending the only one fish they have! In other words, it is not quite true that a fish is un pez and a fish that has been fished is un pescado.
Furthermore, fish need not have been fished to qualify as pescado. In the area of Northern Spain where I live I have often heard fishermen complain that it no longer pays to go to sea because there is ever less pescado i.e.
No merece la pena salir a la mar porque cada vez hay menos pescado.
Significantly, they do not usually say
No merece la pena salir a la mar porque cada vez hay menos peces
(although that sentence is grammatically correct, too), probably because there surely still are millions of fish, only that most are not worth fishing, perhaps because they are too small, or not edible, or edible but belonging to species not sufficiently appreciated by the consumers to be worth commercializing, or whatever.
This suggests to me that Spanish pescado is not really fish that has already been fished, even though that is the obvious meaning of the past participle of pescar, but fish that is worth fishing, whether it has already been fished (and is on sale, or is cooked and about to be served, or is already on your plate, or in your stomach etc.) or not.
Well. If we take from the old context that before there was not any common fish and now there is a bunch, saying: "pez", it would had been correct for a fish which had not before been reeled into the boat. Nowadays, if the fish is in captivity, it is already a "pescado" (since it was born in that manner). Therefore, only the fish at the sea or the river are wild a.k.a. "pez" and enclosed/caught "pescado"
