Co-location is normally only an option for large websites and organisations who have their own hardware. With co-location you supply all the hardware and the web hosting company provides rack space in which to house your servers, and connects them to their own routers and switches.
Co-location can work out cheaper than dedicated servers once the initial cost of equipment is paid off. You will generally have a choice of different bandwidth providers and can configure your equipment however you wish.
The downsides to co-location are that you will be required to not only manage the server administration but will also be responsible for any hardware problems or failures. Unless you are a very large company with in-house staff and good access to the datacentre we would recommend against co-location in the majority of cases.
