So in essence, a Switch helps reduce bandwidth bottlenecks by forwarding data only to the node that its intended to go to. Switches are common in larger LAN environments. Its very common to plug several Active Hubs directly into a Switch. Everyone plugs into the Hub at their own row. The 5th port on the Switch is given to the game server.
Any packets coming from the server work the opposite way.
Dedicated servers usually are required around 12 or 16 players. Another benefit of having a dedicated game server is that you can generally configure it to load certain maps or levels with certain settings after a certain amount of time or number of frags. You also have to make sure you have enough RAM in your system to support the OS, Game Server and all the Playrs on it. Each computer draws anywhere from 4 to 5 amps from the circut. On a 20 amp circut, you can only have 4 or 5 systems.