Here at BetterWebSpace we're great fans of analogies, and like to think we can explain pretty much any technical concept in plain and simple terms (our beer and bandwidth one is a favourite!).
Let's consider your webspace you buy from us to be a house or shop that you're renting (we're effectively your landlords!), it's a very nice property and you can do lots of work on it getting it to look exactly how you want (and for the most part you won't need planning permission!).
Your property is on an estate with lots of other houses and businesses, this estate is our servers. We're responsible for the upkeep of the estate and you're responsible for the upkeep of your property. The town the estate is in is our datacenter housing lots of other estates, and the roads that lead to and from it are the internet.
So, you have a nice house/shop but it doesn't have an address and as such nobody knows where you are or how to get to hold of you. You need an address, a shopfront, a postcode for SatNav! This is your domain name.
As you can see having a domain name without hosting is like having a postcode in the middle of a field, and hosting without a domain name is a property in the middle of nowhere with no way of finding it!
This is a little bit more complex, but not much...
When you create a domain name it has lots of different records associated with it, just like your property above would have.
Nameservers are things we ask you to add to your domain name to direct it to our servers, essentially we have your domain give out directions to our estate and then we look after your customers and deliver them directly to your property (we're kind like that!).
Most of the other DNS records you'll never need to look at unless you want to do something a little bit more complex. However, we'll cover the two most likely of the complex situations.
We really hope that explains what we do and how we do it!