In very simple terms Shared hosting also known as Virual hosting is one where your hosting company hosts lot of websites on one Server ie your site as well as your neighbour's website may be hosted on the same server.
By the name itself you can think that in shared hosting server space is shared between many users.

While in dedicated hosting, your site alone is hosted on server, you own all the space on web server and space is not shared with any other user. The whole server is dedicated to your sites.


Shared hosting is cheap where as dedicated hosting is costly.
The reason why shared is cheap is simple. Suppose a web hosting company purchsed a web server with 80 GB web space then the company can sell it to 80 users with 1 gb space for each user and this brings the profit to the hosting company. Wher as in dedicated hosting you have to pay alone for that 80 Gb web space.

You must have seen offers where hosting company provides you hosting as low as $6.95 per month, this is shared hosting.
Where as dedicated hosting costs you more than $75 per month.

Most of the people go with shared hosting as its cheap in comparison to dedicated hosting.