One important point that is alluded to but not directly addressed is the difference between "precision" and "scale" and how they are used in the two statements. "precision" is the total number of significant digits in a number. "scale" is the number of digits to the right of the decimal point.
The MathContext constructor only accepts precision and RoundingMode as arguments, and therefore scale is never specified in the first statement.
setScale()
obviously accepts scale as an argument, as well as RoundingMode, however precision is never specified in the second statement.
If you move the decimal point one place to the right, the difference will become clear:
// 1.
new BigDecimal("35.3456").round(new MathContext(4, RoundingMode.HALF_UP));
//result = 35.35
// 2.
new BigDecimal("35.3456").setScale(4, RoundingMode.HALF_UP);
// result = 35.3456
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