Shared Hosting = One computer(server) hosting many websites from many owners.

Dedicated hosting = One computer hosting ONLYyour account/website

Dedicated provides more bandwidth for you. The traffic on other sites does not effect the performance of your site. You often times can specify exact server settings because they do not effect anyone else. The best part is if a shared server goes down there are hundreds of people trying to contact tech support.t If your dedicated goes down they only have to help you and problems are usually fixed quicker
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Dedicated hosting is code for "we want to charge you even more money."
It also means that you are going to be the only user for that machine, so if you have a traffic spike, you won't impact other customers, only yourself. 
Finally, because you have your own machine, and you are paying a lot more, you will be getting slightly better access to tech support and better uptime warranty.
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From personal experience, dedicated hosting means more than just "we want to charge you more money." I run 200+ websites in a shared hosting environment. Those domains all use the same ip address. So when one of our users got a virus that exploited his domains email accounts, his domain, and therefor the ip address, got blocked for spam from several major ISPs, including bellsouth and comcast.

That meant that every email from every one of our 200+ domains that was sent to a bellsouth or comcast email address got blocked. 200 domains at an average of 10 email addresses per... that's a lot of pissed of callers.

If you have a low-traffic site, a shared hosting environment SHOULD be just fine for you. We have sites that get 30,000 unique views per month alongside the 200 others. I don't know the bandwidth off the top of my head, though.

However, if this is a professional venture where you're going for massive traffic, you'd be better off future-proofing your investment and getting a reliable server environment. Good luck.
Source(s):
Personal experience, www.sysconn.com

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