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I submitted a paper to an IEEE journal. The editor provided the following review:

Based on the enclosed set of reviews this manuscript is not acceptable for publication in its current form, but may be acceptable after being thoroughly reworked. If you choose to resubmit, please send the reworked manuscript no later than 07-Mar-2019, but preferably as soon as possible. The sooner we receive the resubmission, the better the likelihood that we can utilize the same editor and reviewers. If an extension is needed for any reason, please contact ... with an expected date for the resubmission.
Your resubmitted manuscript will require an additional full round of review, but as stated above, we will make every effort to utilize the previous reviewers if possible. Please be sure to mention the original paper number and include a point-by-point response to the reviewer comments in your cover letter and/or File Upload section.

Does that mean "Reject" or "Major Revision"? What is the difference between this decision and reject?
If I decide to submit the paper to another journal, should I withdraw the paper from the first journal?

Revise and resubmit means exactly what it says: if you revise the manuscript and resubmit it, we will look at it again (hopefully with the same editor and reviewers, but not necessarily). Typically this means the required revisions are substantial enough that it will go to reviewers again.

Reject means we do not want to see the manuscript again.

More recently reject and resubmit has become a thing. It is like a revise and resubmit, but the journal is going to count the manuscript as a new submission so their rejection rates go up and the time to final decision goes down. Sometimes they try and use the same editor and reviewers and ask for a rebuttal letter, just like a revise and resubmit. Other times it is on you and they treat it like a new submission.

This is clearly a revise and resubmit. If you wish to not revise and resubmit you can just submit it to another journal without telling them anything, but it would be polite to tell them that you are not going to resubmit the manuscript. That way they can close out the paperwork on their end. As for concerns about double submission, once a decision, apart from acceptance, is made, you can do whatever you want.

It means that you are permitted to resubmit rather than forbidden to do so. The only difference is that when you resubmit it will be treated as a new submission and start over at the beginning of the process, likely with new reviewers.

But they are also warning you that only a major reworking will be acceptable. Hopefully the reviewers will point you in the direction that might lead to success.