This is the easiest and less expensive solution. The video file is simply placed on the webserver with a direct link from your webpage. No extra hardware or software is required. However, because there is no 'intelligence' involved in delivery, this method cannot adapt to network conditions and will result in buffering - when the video pauses whilst the next part of the file is downloaded. Additionally, if copyright is an issue and you don't want the end user to be able to keep a copy of the video then this delivery method is best avoided.
Video is served from a dedicated media server.
Each encoded video actually consists of several substreams for different bandwidths. During play, the server communicates with the media player and adjusts playback bandwidth to suit the network conditions. Some ISP's offer limited video and audio streaming. This can be an economical option for small business or personal use. However, you may be limited to very few video files with throttled bandwidth restricting number of plays.