A web host is essentially a company that has many computers (or servers) that hold all of the information for your website along with the redundant connections that allow for your website to be accessed via the Internet. Many large companies have their own server (computers) and IT guys to service them. However, unless you are a tech geek, it is much easier to pay someone to maintain the equipment and software that keeps your website online, rather than doing it yourself.
The cheapest form of webhosting is shared hosting, but if you have a small business you probably don't want this option. Shared hosting is when a web host takes a lot of websites and puts them all on one computer. This option is better for a home-based business that doesn't see much traffic and doesn't need much bandwidth or disk space.
Virtual Hosting or a Virtual Private Server is much better for small businesses that need more disk space and more data transfer for high traffic websites. Virtual hosting is like shared hosting in the fact that there will be more than one website on a server, but virtual serving acts more like a dedicated server. This is because each part of the server is partitioned off in order to act as an independent server, much like dedicated hosting. Your section of the server will have its own operating system and you also have the capability to reboot if necessary. As well, you will have the option of tech support if you mess anything up.
With dedicated hosting, you get your own server (computer). With a dedicated server, you can choose the operation system, the hardware configuration and customize the script installation. If you are not familiar with these terms or do not have someone that you know who is, dedicated servers may not be for you unless the web host offers this kind of tech support. So a dedicated server is really more necessary if you are planning to have a lot of traffic come to your website and download a lot of data. This is why a dedicated server works well if you have a large inventory of products for example, and will have a huge catalogue of photo galleries that a lot of people will want to look at every day.
Should You Choose Virtual or Dedicated Hosting?
Unless you are planning on having a huge amount of traffic to your website with thousands of purchases, you probably won't notice the difference between virtual and dedicated hosting. Dedicated hosting is better for a high volume ecommerce store, but virtual hosting is fine for everything else and costs a lot less. As well, you will have more technical support with virtual hosting if you need it and most web hosting companies will let you trade up to dedicated hosting if it is necessary in the future.