Allocation of resources. Most hosting is done on virtual machines that are running several instances of lightweight operating systems virtually. So one box hosts several 'servers'.
Grid hosting is that on a larger scale, only instead of one box, there's 20 and instead of ten client machines per 1 box, they collectively host 100 (numbers are nowhere near to scale).
Anywho, most web servers don't actually consume a lot of resources. Sure, there are times when they're more busy or not, but you'd be surprised how often servers just sit there doing nothing. So, to conserve that time, the grid hosting software deallocates resources to the machine. During the busy time, with the combined processing power of 10 or so big machines, it can more easily and appropriately scale to demand.
I've often felt that Godaddy's grid hosting plans deallocate TOO many resources from servers, requiring them to restart their web instances, keeping the page from loading immediately. I just checked my other server, one no one should be going to, and it seemed up on the first try.