The service makes it possible for anyone to create a WordPress website hosted on the WordPress.com servers, and offer multiple features and themes that can be used on the service. It’s free to create a website on WordPress.com, but some optional features (like e-commerce functionality and domain names) are available for purchase.
The difference between a website hosted on WordPress.com and one hosted on the server of a web host is that a website hosted on its own server can be modified in whatever way the website owner wants, while the website hosted on WordPress.com can only be modified to the extent allowed by the service. Most types of websites can be built on either one, though. Which route you want to go is mostly a question of taste and ease-of-use. It’s a lot easier and faster to create a website on WordPress.com, but not as flexible as hosting one on your own server.