Question: I cannot see any difference between these two sentences. I assume both express the same but what is the difference? I thought that "used to" is used to describe an action that was happening in the past...but should "live" be considered as an action?

> 
> I used to live in Prague 5 years ago.  
> 
>  I lived in Prague 5 years ago.
> 
> 
>

Answer: 
They're not quite the same. *Used to* carries an extra [Presupposition](http://www.umich.edu/~jlawler/Presuppositiontriggers.pdf) about the present, to the effect that
if `X` ***used to*** `VP` in the past, then it is presupposed that `X` no longer `VP`s.

* *I lived in Prague 5 years ago and I've lived in Prague ever since.*
* \**I used to live in Prague 5 years ago and I've lived in Prague ever since.*

This can lead to interesting interactions with other presupposition triggers; for instance,

* *Carter used to be President.*

**asserts** that he was President in the past and **presupposes** that he's not President now, whereas

* *Carter isn't President any more.*

**asserts** that he's not President now, and **presupposes** that he was President in the past.

Since only assertions but not presuppositions can be negated, if someone were to say one of these sentences about President Carter and you said they were wrong, what would you mean? 

* In the case of the first sentence, if they're wrong in saying that he *used to be President*, then you're claiming he was **never** President.
* In the case of the second sentence, if they're wrong in saying that he *is not President any more*, then you're claiming he's **still** President.

As ruakh points out, the stative nature of the verb *live* makes the durative *used to* unnecessary, but the real weirdness is the extra and probably unnecessary presupposition.
*Used to* refers to a state or habit in the past, whereas the past tense describes an event at a particular time in the past. That means that the first sentence would be unlikely because a state or habit cannot normally have such a specific time reference. *I used to live in Prague* on its own is fine, but if you wanted to specify when you lived there, then the second sentence is what you’d use.