When you compare web hosting plans, the choice between shared hosting and a dedicated server is quite the first you will be confronted with, and that´s not just a question of budget. Managing your own server requires a certain technical expertise, experience and time (an all too often undervalued factor). Time probably better spent on creating content and improving your website than on technical matters arising in the background of things. While a dedicated server gives you ultimately more freedom, the question is, do you really need it, and keep in mind that with freedom come obligations, so unless you really know what you are doing or indeed need the last bit of resources for a heavily frequented website, this can as well turn against you, requiring more efforts on the technical side of affairs than you fancy in the long run.
Most people never really need anything else than a decent shared web hosting plan. If you have a limited budget and your website is not yet enormously popular (the most common situation), but are not sure about future developments, buy shared hosting with a server company offering a clear upgrade path. If you ever push your web hosting plan to its limits, you can then easily move to a more powerful setup – often this just takes merely more than a click these days. In such an environment, you can rent your own server when you indeed need it or are at least sure that this is what you want. The costs of a dedicated server are by then most likely justified by the success of your website.
In terms of budget and hosting power needed, where do you draw the line between shared web hosting and dedicated servers? As a rule of thumb, if you have or expect moderate traffic (less than 100 visitors accessing your website at the same time) and your budget is less than about $30 per month, a shared web hosting plan should accommodate you well.
If you have to plan for many hundred or a few thousand simultaneous users, and you can spend into the three digits monthly on hosting, and you need absolute control over the hardware underneath your webspace, a dedicated server is for you.
An interesting solution in between (as well budget wise) and even for many power users sufficient are Virtual Private Servers (you will usually find them under the term VPS hosting). They provide a good environment for testing or developing your server management skills. If you just need a shared web hosting plan for now but perhaps more resources in the foreseeable future, keep an eye on the VPS hosting offers, too.
Note as well that many web hosting companies do not allow certain applications to run on shared hosting or reserve the right to limit heavy usage of server resources, which is to ensure decent performance for all account holders sharing the server. Forums or downloads are often under such restrictions (although some hosting companies even offer forum applications with 1-click installation within their cheapest shared web hosting plan, so it all depends.)
