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Best Answer: Game servers can be classified as listen servers and dedicated servers. Listen servers are run on the same machine as the game client. When the client disconnects, the server is shut down, as the server and host client are run together. Listen servers usually cannot support many players, due to bandwidth and CPU requirements. The software running the listen server typically limits the number of players for this very reason.
Dedicated servers are set up on a separate machine, often hosted in a data center; thus they have high bandwidth and do not have to share CPU with the client's game. In general, dedicated servers are more preferable for large game servers and/or 24/7 up time.
Dedicated servers are used by game server providers to host individual game servers or Massively multiplayer online games. In general Massively multiplayer online games are all run on dedicated servers usually hosted by the software company that developed and owns the game title, as this allows them to control and update content. In many cases they are run on clustered servers to allow for huge environments and large player counts.
Listen servers are mostly used by individual players in a LAN party setting.