Web hosting is the provision of a home for your website. Your website files, emails and data are stored on a web server, which is a computer that lives in a rack often alongside hundreds of other computers & racks in a purpose built facility.
These highly secure locations feature state of the art air conditioning, fire suppression and access technologies aimed at protecting the data of customers.
Generally you will never actually see the physical machine that your website lives on, but instead connect to it remotely using FTP or SSH technologies that allow you to view the files on your server from your computer.
Hosting varies in quality, support and speed. The general rule of thumb is you get what you pay for, therefore if you’re paying £1.99/month, the features, support and quality of service will usually reflect that level of investment.