Bandwidth is simply a measurement of the amount of data being transferred at any particular period of time. To understand the limitations of bandwidth and how it is measured, you have to understand how data transfer works. If a file that consumes about 5MB of data is transferred from the web server to the visitor's computer at one point in time, then 5MB of bandwidth is being used at that time. However, if three people download that 5MB file at the same time, then 15MB of data is being transferred. Thus, if your hosting account only allows for 10MB bandwidth, in the above example, one of the visitors would have to wait because the bandwidth limitations would be exceeded at that moment in time.
Web hosting plans usually start with bandwidth limits of about 100 MB. To put that into perspective, it would take just 40 people downloading a large file at a speed of 2.5 Mb/s at the exact same moment in time to exhaust the resources of that hosting plan.
By measuring bandwidth, web hosting companies can accurately and effectively control their web servers and keep them operating smoothly. The way server resources are delegated after the limits are reached depends upon the type of web hosting. In VPS cloud hosting the hosting provider will pull resources from a network of servers and charge the webmaster for the excess bandwidth. If you are noticing that you are routinely exceeding your bandwidth limitations, then you may want to start comparing another web hosting plans for your next upgrade.