First, there is shared hosting. Shared hosting has each clients’ (client is the person purchasing shared hosting) sites “jailed” into their own hosting environment. This environment can’t affect the software configuration of other clients, but it shares the CPU and memory resources with the all of other clients hosting on that server. This is the cheapest option

Second, there is virtual hosting. Virtual hosting takes a large, high-end physical server (host server) and splits it into multiple virtual private servers. Each virtual private server(VPS) has its own CPU allocation, memory allocation, and disk space in its own environment. No VPS (if the hosting company has allocated correctly) can impact any other VPS on the host server. You pay by the CPU and memory allocation, typically. Disk space isn’t that expensive. An example of this type of hosting is http://www.slicehost.com and no, I’m not affiliated in any way.

Third, there is the dedicated server, which as it sounds is a complete physical server with all resources dedicated to the client.

VPS and dedicated hosting typically both require the client to have good knowledge of how a web server is configured, run and diagnosed(in the event of a problem). Most VPS and dedicated hosting packages include the nuclear option of a reset to defaults switch that resets the server to the way it was originally.