Shared Web Hosting means that one physical server and its available resources hosted are shared among many users. Actually, on the shared hosting platform each customer has his own limit on particular services like disk space, monthly traffic, email accounts, FTP accounts, databases etc.
On the other hand, all performance resources on a physical machine (server) are shared. The RAM and CPU, the single Apache server, the single MySQL server and the single Mail server are on a shared basis.
Shared Web Hosting is the most economical way of hosting a website simply because expenditures per machine are covered by more users. Due to the favorable ratios these savings trickle down to the customer.