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Shared Hosting refers to when your web site is hosted on a server along with many other customers' web sites. Your web site is still configured as a separate web site on the server and can still have its own domain name etc. It is simply sharing the server with other web sites.
The big benefit of shared hosting is price. Shared hosting can be very cheap. Having your own server (otherwise known as a "dedicated server") costs a lot more.
The biggest downside of shared hosting is performance and security. Because you're sharing a server with other customers, performance of your website could be impacted by other customers' websites. If your site happens to be sharing a server with a high-traffic website for example, it could slow the server down or stop it altogether. Also, some shared hosting companies host thousands of websites on a single server, so this is a real consideration. Also, although there are many ways of securing a shared hosting environment, it is never going to be as secure as having your own machine (or even virtual machine). So if performance and/or extra security is high on your list of priorities, shared hosting may not be for you.
A Dedicated Server is a server that hosts only your web site (or web sites). This can give you more control over your web site. It can also help in ensuring that other customers' web sites don't impact on your web site. Using dedicated servers is much more expensive than shared hosting, but if your site receives lots of traffic or you have other requirements (such as extra security requirements), a dedicated server could be for you. You are able to log in to your dedicated server just as you would log in to your own computer. Once logged in, you can install and configure software as you wish.