A dedicated server is dedicated to your account and website(s), whilst a shared server houses your account and website(s) as well as other customer’s and their website(s).
Depending on the web hosting provider, there can be hundreds of customers on the same server, or just a handful. The less customers there are, the more of a premium price you can expect to pay. The more customers there are, the cheaper they can afford to make the price.
Generally, cheap shared web hosting means more customers on the server. This may not always be the case, but not an unreasonable deduction.
Shared hosting, as a product, isn’t bad though. It really depends on the specifications of the server. If the server has a powerful CPU and a lot of RAM, you probably wouldn’t be able to tell much of a difference. It’s when there’s too little RAM for too many customers when problems start arising.
Emmix Hosting uses the Shared Hosting model. However, we don’t squeeze a ton of customers onto one single server. Yes, our hosting costs are slightly higher than other cheap web hosts, but that’s because we use premium Australian based servers and have few customers per server. Not to mention that our servers have 12GB of RAM. Other shared hosting providers have 1GB (or even less sometimes).