We develop a nonequilibrium model of condensation and lasing of photons in a dye filled microcavity. We examine in detail the nature of the thermalization process induced by absorption and emission of photons by the dye molecules, and investigate when the photons are able to reach a thermal equilibrium Bose-Einstein distribution. At low temperatures, or large cavity losses, the absorption and emission rates are too small to allow the photons to reach thermal equilibrium and the behavior becomes more like that of a conventional laser. 