What is a server ?
A server is something that serves content. ie, a place where you can keep your website's files. Normally it is a computer at a data center. Owing to the need to communicate through hard lines, they normally do not have a monitor. Other parts of home computer are retained in a server. ie, a CPU with a powerful Intel Xeon processor ( normal choice ), abundance of RAM, motherboard annd so on.
A server is supposed to work 24 x 7 x 365. So the hardware used on a server are industry class. The data center employs other peripherals and devices to keep this hardware running. For example a very good internet connection, an uninterrupted power supply, one or more back up internet lines to keep the server connected online so that your website will not suffer an outage. There will be other devices like industry grade routers, switches, modems, cooling system etc to keep the server online and help serve your content to the customers without failure.
The economics of selling your server space
If you check with someone who started into web hosting for an individual website or a couple of them, they would any time tell you the best way to get into running websites is to get a shared hosting package. A shared hosting package is usually a very small space in a standard server. Web hosts cannot make enough profit if they dedicate their resources ( server ) into selling shared hosting packages alone. It is because shared hosting plans available in market are very economical and budget concerned.
Why a VPS ?
I gave you above data so that you can understand that customers who will ask for a dedicated server ( a full server ) is not a majority. Here comes the viability of a Virtual Private Server. It is like dividing server into units which behave like a server and sell them to those who are having a high traffic website and need a solution better than shared hosting packages offer.
A VPS is much cheaper than a dedicated server and much powerful than a shared hosting. Dividing a server into shared hosting, VPS and Dedicated Server packages helps a web host stay afloat.
What is your opinion about running your own web hosting company ? Will you dare to do one ?