In SharePoint 2007, we can create two types of site-collections namely path-based site-collections and host-named site collections. The path-based site-collections are more the traditional and more common way of deployment. In Path-based site-collections, the site-collections are mapped to a managed path that is subordinate to the web application. The limiation of the path-based site-collection is that i can have only the single host name or hosted URL. This does not provide great benefit in terms of url scaling.
The host-named site-collections are created by providing a valid host-header name.