This is a type of hosting where the user places their servers with a hosting provider and pays for their maintenance. Usually the price includes a minimal set of services: rental and protection of the equipment space, connection to electricity and Internet, cooling, etc. Additional services, such as data protection and backup, may be offered for a fee.
Colocation can be compared to a hotel room. You book a room and get bedding, internet, service and possibly food in return.
This type of hosting is appropriate if your site consumes more resources than a dedicated server can provide. Paying for several dedicated servers each month will be more expensive than buying your own equipment and renting space for it.
