Web application

Every Web application is an IIS Web site, so it has it’s own URL (6).

A Web application is for administration of the SharePoint configuration.

When you create a Web application, you make a new IIS Web site(called application pool in IIS), and install WSS 3.0 components in that Web site. This makes it possible for the IIS Web site to store, run, and manage site collecitons.

A Web application is essentially an empty shell with an associated URL. You need a Web application to make a site collection (1).

You need a Site collection and sites to be able to show anything to a user. Each web application can host many Site collections.

Every web application(7):

Runs as a separate IIS website,
Has its own URL,
Has its own content database,
Can have its own authentication method,

Reasons to use more than one Web application on a SharePoint farm:

Because a Web application is actually a website in IIS you have a strict separation of the runtime environment. So if e.g. a webpart gets implemented in http://sandbox1.ourcompany.com and it takes the entire IIS site down then still another Webapplication at http://sandbox2.ourcompany.com remains running and is not affected (Runs as a separate IIS website).

Total size is becoming to large to do backup in reasonable time (Has its own content database),

You have more than one sort of public on this machine: e.g. an external site for the entire world to see, and an intranet (Has its own URL, Has its own content database, Can have its own auth. method).

As a means to separate the users it is not a very good one though from a security point of view(8).

You are stuck to using at least three Web applications: one for Central Administration (for configuring SharePoint itself), one for the SSP- Share Service Provider, and one for the user(-s community). When you make another webapplication we are always referring to the latter: for the users. If you use My Site, be advised to use a separate Web application for that too.

Site Collection

A Site collection is geared towards the company, the people using sharepoint.

A Site collection is a top level site. Sort of like the root in a directoy. You can fill it with both document libraries ‘n such, and from here you can make (sub-)sites, as many levels deep as you like.

Typically you give a site collection to a business process (like sales), or if you are less well organized you give one department a site collection (running into problems when you reorganize).

It is possible to have the contents of a Site Collection stored in a dedicated database. The main reason to do so is you can backup/restore in a reasonable timeframe. Do NOT create a site with a dedicated sitecollection and database for performance reasons, as many databases do not scale well(9).

It is not obvious how to set the contents of a site collection to a certain database however. Of a web application it is.

A bit about jargon:
Either talk about TLS-Top Level Site and subsites, or about site collection and subsites.
Developers often refer to these as the root web and subwebs.
A bit annoying: for programmers the jargon is a bit different from the people doing installing and maintenance.

WFE
A Web Front End is a piece of hardware, it runs the MOSS server that provides the user interface. At the back end it talks with the SQL server where all content is stored. There can be multiple WFE (as well as SQL servers).

SSP – Shared Services Provider
An SSP is to help administrators to keep administration (as much as possible) in ONE place and not on every server.

Suppose you have a webfarm with more than one WFE. Suppose you want to change some setting on team sites, wikis blogs, collaboration or publishing in a general sense. These settings are NOT stored in the database but locally on the WFE itself. So if you change it on one WFE, you must change it on every WFE. SSP does that for you: you change your settings in one place only, and SSP changes all the appropriate settings on the appropriate servers for you.
In other words: An SSP is a collection of farm services (such as profiles, search, audiences, scopes, alerts, BDC, Excel services and usage reporting) that are made available and consumed by the associated Web applications and site collections (3).

A Web application hosting site collections needs to be associated to a SSP: therefore, SSP should be created prior to creating other web aplications(5).

A server farm has at least one SSP. To host the SSP, a web application is required.

The SSP needs at least one Web site for hosting its administraion Web pages. Micosoft recommends a minimum to use two IIS Web sites: one for the SSP pages and another one for the My Site hosting pages(2).

You can have multiple SSP’s on one server farm and even one SSP for multiple farms. Unless you have very good reasons, just stick to one SSP for every server farm.

If you need more than one index server you must use a different SSP for each index server(4).

Application (-server)
In MOSS Jargon an application server is either a MOSS search, index or Excel server.
It has nothing to do with applications in a general sense as we understand them.

WFE, SSP, Web application, Site Collection, site
A WFE (Web Front End) is the hardware, running bits of MOSS.
Because you can have more than one WFE the SSP (Shared Service Provider) helps you out configuring many settings on all of ‘m even though you do it in only one place.

If you have more than one Web application: all webapplications run on every WFE. You cannot distribute webapplications over the various WFE. It would negate the idea of redundancy and load balancing.

The rest has a hierarchical connection:
You need a Web application to run any site collection.

A web application can have multiple site collections.

A site collection can contain many sites, and finally sites can contain many sites, many levels deep.

Every site can contain many lists such as document libraries.

Every list can contain many items, but there are practical limits.

The source for this excellent overview: SSP, Web Application, Site Collection, Sites

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