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the-pi-guy said:
It isn't really different from dedicated servers. This is basically the advantage:
Game A is on Server A and Game B is on Servers B and C.
Game A is getting more popular and Game B is getting less popular so Game A takes over Server B.
It's that scalability that is different from most dedicated servers. MS has to run all these servers for all types of things, so they have a whole bunch of available servers for use. They're able to allow game companies to use these servers. So rather than Company A having to take time to get more servers, they can just connect more a lot easier.

Connectivity, Scalability and costs are the big advantages.

At least that's from what I understood.

Advantages are on the admin side, not the user side.  Unless someone is talking a grid type configuration, where computing is distributed across a number of servers,  then it is just dedicated servers, with ease of scaling and administering.  It is not magic.  It doesn't make graphics better either.