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Microsoft SharePoint Server 2010 supports both path-based and host-named site collections. The primary difference between path-based and host-named site collections is that all path-based site collections in a Web application share the same host name (DNS name), and each host-named site collection in a Web application is assigned a unique DNS name.

Path-based site collections provide a corporate hosting solution with all site collections sharing the same host name of the Web application. In a path-based deployment, you can have a single site collection at the root of the Web application and additional site collections under managed paths within the Web application.

Host-named site collections provide a scalable Web hosting solution with each site collection assigned to a unique DNS name. In a Web hosting deployment, each host-named site collection has its own vanity host name URL, such as http://customer1.contoso.com, http://customer2.contoso.com, or http://www.customer3.com.

SharePoint Server 2010 provides two significant improvements to host-named site collections: the ability to use managed paths with host-named site collections, and the ability to use off-box SSL termination with host-named site collections.

Technet: http://technet.microsoft.com/en-us/library/cc424952.aspx

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