Here's a quick, though not necessarily clear, summary from a web report on the subject:
"The status of sex work in Canada presents a confusing picture for most people. Although it is commonly believed that sex work is illegal, the exchange of sex for money is not prohibited by the Criminal Code of Canada (1985). Instead, the relevant sections of the Criminal Code (sections 210 through 213) target only activities associated with sex work, including: keeping or being found in a common bawdy-house (s. 210), providing directions to or transporting someone to a bawdy house (s. 211), procuring or living off the avails of prostitution (s. 212), communication in a public place for the purpose of prostitution (s. 213), and purchasing sexual services from someone under 18 years of age (s. 212(4)). In addition, some forms of sex work leave workers open to charges under other sections of the Criminal Code such as: obscenity (s. 163), engaging in an immoral theatrical performance (s. 167), performing an indecent act in a public place (s. 173), and public nudity (s. 174). Thus, while sex work is not illegal, a number of activities associated with it are."
"While Canadian criminal laws make it difficult for street prostitutes (s. 213) and in-call prostitutes (s. 210) to practice their profession, or for exotic dancers to perform certain types of dances (s. 163, s. 167, s. 173 and s. 174), or to engage in consensual acts of sexual contact on the premises of the strip club (s. 210), without violating federal statutes, it does not necessarily impede the work of escorts, who work on an out-call basis. However, there are Criminal Code restrictions on escort work. For example, according to s. 212, any individual who arranges for someone to engage in prostitution (e.g., an escort who "brings a friend along," an agency owner who arranges for an escort to meet a client explicitly for the purpose of the exchange of sex for money) is in violation of Canadian criminal law. In addition, s. 212 makes it illegal for anyone to live off the money earned by a sex worker, which can technically be extended beyond "pimps" and employers or agents to include children, spouses, lovers, parents, siblings, friends, babysitters and drivers."
A fairly decent legal summary can be found here:
http://sexwork.com/montreal/law.html