Before classifying types of IP addresses, perhaps we should clear up what an “IP address” is. An IP address is the numerical representation of a Web site’s address. When you type in a domain name (ie. www.example.com) the computer accesses a special server that tells it what IP address is attached to that domain name. Domain names were created because they’re easier to remember, and prettier, but computers work in cold, hard numbers. For example, the domain name Google.com is a lot easier for us humans to remember than its IP address, 64.233.167.147
This isn’t to say the ratio is always one domain = one IP address. IP addresses can be, and often are, shared among a number of Web sites all hosted on the same servers. The IP address simply points to a server, the server then has its own “address book” of sorts that directs the incoming visitor to the appropriate site.
Shared IP addresses are common, and generally wont effect most smaller sites. However, the possible downside to having hosting with a shared IP is that should one person on the shared IP be involved in some devious activities (such as spamming or scamming) that IP can be banned and/or blacklisted. In the case of countries where there is a large amount of internet censorship (most notably China), if a user on a shared IP puts content on their Web server that causes the site to be “blocked”, all sites on that IP will also be blocked to viewers in that country.
Dedicated IPs mean that there is one IP address completely reserved for your site. In addition to the concerns mentioned above, dedicated IPs are also essential for e-commerce sites that wish to have a merchant account where they accept credit cards. This type of site requires an SSL certificate, which in turn requires a dedicated IP address.