A domain name is a name used for identification purposes on the Internet. In WordPress a domain name usually identifies a server where WordPress is installed. To make this work, the Internet's domain name system (DNS) maps the domain name to a server's IP address. For example, the domain name example.com maps to the IP address 192.0.43.10. Many domain names can map to the same IP address, allowing a single server to run many websites. For example, the the domain names www.example.com and example.net also map to the IP address 192.0.43.10.

Reference http://codex.wordpress.org/Glossary