The hosting company must continually monitor the traffic and they make sure that no one domain gets more than their fair share of the processor. Its important when picking a hosting company that you do not go with a company that allows pornographic sites or download sites. Both of these types of websites tend to generate extremely high traffic levels, and can bog down your website just by being on the same server with them. Another factor that can impact your website is the total number of domains that reside on a webserver. For example a company that is charging 10 bucks per month might try fitting 200 domains on a single server, whereas a company charging 19.95 per month might settle for only 100 domains on a server.
Server crowding is important since a box can only push so much data at a time.
Consider the crowding issue like a bunch of very thirsty people around a water fountain, only so many can drink at one time. This is true of the server's link to the net, it can handle only so many connections at one time. Shared hosting means that you and only a handful of other domains reside on a particular server. Shared hosting is much more expensive than owning a virtual host somewhere. There are considerably fewer accounts on a shared host, hence the cost of the server is spread out over 2-4 accounts rather than 100 accounts.