The topic of shared vs dedicated server hosting is often missunderstood by many end users.
The most important thing to remember is that behind every successful website is a good hosting company. Often people moan about hosting companies whne sometimes this is unfair. You cannot compare the speed and reliability of a dedciated server hosting platform with a shared hosting service but often people do.
A shared hosting service is exactly as it sounds, a server sharing everything with other many different client websites. If you do not want to share resources with other sites and require a super fast loading website then shared hosting is not for you.
Other things to consider is that every web server has a unique IP address which identifies the server from others. This is important as when someone enters a web address the end result is controlled via name servers and these refer to an IP address. Imagine if an organisation or individual purchased hosting on the same server as your website and then started using it in a negative manner and got the IP address banned or blocked. This can result in your website being effected and could ruin your business. Also known spam sites and adult sites will raise a warning flag to most search engines. Also note that spam sites cause further problems as they try to trick search engines to provide a high rank and search engines like AltaVista will respond by banning the entire IP address from the index.
A website can have its own unique IP address and still be on shared hosting which is a benefit and most hosting providers will be able to provide you a unique IP address for a small fee.
If you have a website that is going to be receiving a large volume of traffic then you should go for a dedicated server to prevent problems with bandwidth restrictions on shared hosting. Server responce times will be slower on a shared hosting platform and due to the nature of the responces you may have long wait times before your website files are provided.
Shared hosting is also more likely to have problems even thou most web hosting companies try to protect the server by preventing scripting. A poorly written CGI script could take a server down very quickly.
After reading this do not thing that shared hosting should not be used as there is a large amount of websites you will visit are on shared hosting with no issues at all.
A dedicated server is your own server that will host only your websites. This costs more but the benefits and features of dedicated hosting will be much more the increase in hosting costs