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What exactly is web hosting? - In a nutshell, web hosting is a like a folder or directory on your computer, except it's on a computer that's connected to the Web 24 hours a day, 7 days a week. And, anyone on the web can read what you put in it. To use a web host, you put your files in your space on the web host. Visitors can find your files by going to your web address (called a URL.) When a visitor makes a request to your URL, a web server "hears" that request and gets the files from the disk where your website lives, and shows them to the visitor. If you want to create a simple web page, or build a massive web store like Amazon's, you need web hosting. You build your pages using a web language like HTML, build your scripts (programs) using a server language like PERL or C#, and then you upload everything to your web host, tweak some values for your scripts (if you have scripts) and voila... your live. (That's a very, very simplified answer.)
Web hosting comes in different shapes and sizes. Which flavor is best for you depends on what you are trying to do; on what your "application" is. The major categories are: Shared Web Hosting, Virtual Private Hosting and Dedicated Hosting.
Within those categories you find subcategories such as e-commerce hosting and rich media hosting. At a basic level, the major category differences break down between cost and performance. Higher cost usually means higher performance, more tools and more resources. Higher performance often means increased maintenance on your part, though you can mitigate this by paying even more to have someone manage your hosting account.