[mbossman2]

There are 2 main kinds of servers:

File (Storage) servers
Application servers

In both cases (and this is one of the differentiations between servers and workstations), they run specialized versions of the operating system. These specialized versions are designed to deal with multiple simultaneous users, runing mulitple simultaneous tasks with minimal preformance impacts.

Other than the O/S, servers differ from workstations in that servers have:
Increased memory - the more people, doing more things, requires more memory. I have seen servers running 64GB of RAM
Increased storage - as you pointed out, terrabyte storage is not uncommon
Minimal video capabilities - servers and their applications are not, generally, video intensive, so the 256mb SDRAM card running the latest and greatest video accelerator and chipset is a waste of money.
High performance network adaptor(s) - the standard linksys PCI 10/100 ethernet NIC is not going to cut it here (too processor intensive, s-l-o-w and copper rj45 only). Server NICs are much higher performance cards. They have specialized processing engines on board (takes the load off the CPU(s)) and are available in several different kinds of connectors (rj45, multimode fiber, single mode fiber and the like).
Multiple CPUs - like the memory above, many people, processing many things requires more processing power. dual, quad and up to 16 CPU boxes are available.
and the biggie
Redundancy (aka high availability, H/A, features) - Because servers are the central point in a network, down time must be minimized. So H/A servers incorporate some cool features:
Multiple power supplies - one goes pop, the other kicks in
RAID Arrays - multiple disks that can, in some cases, rebuild 1 of there array members in case of failure
Multiple NICs - ditto like power supplies
Hotswap capabilities - if a drive goes bad or nic card goes south or a power supply emits the death smoke, they can be replaced without shutting down the system. Pop the drive cage open, pull the drive and plug in a new one, NIC card? turn the power off to the slot, out with the bad, in with the good etc.
Integrated management - some servers have secondary computers on board that allow the netowrk managers to go in and reboot the main server remotely or troubleshoot an unresponsive server thru a "PC on a card".
Battery backups both internal and external - internal for the RAID controllers to allowed for a controlled multi site shutdown of the RAID array. regardless of the status of the external power and backup systems.

Now, file servers are just that: they are centralized storage devices for many of the files on the network. their O/S and internal design is optimized for the fast identification, retrieval (or storage) and transmission of requested files

Application servers are servers that are dedicated to one (or more) applications - Web services, database applications, email, collaboration, voice services (phones and voice mail), video servers (storage and streaming), etc. their O/S's and internal architecture are optimized for what ever application is being run and that can vary quite a bit depending upon your specific application. A video streaming server will be set up quite a bit differently than, say, an email server.

In a good network, you will have a mix of both: a server acting on/running database queries against another file type server, another running/controlling the video stream of the video file stored on another server, a 3rd running your web services touching all of the above. then you mix in email and security services (AAA - authentication, accounting and authorization) and you have quite a few things going on simultaneously and all of that requires processing power, memory capacity and storage.

Oh yeah and lets not forget the network infrastructure to support all of this, with the same level of performance (probably better for growth and scalability) and redundancy so the networkinghardware is not the cause of downtime or congestion.

Most of what we talk about here is the small sides of the network (residential, consumer based networks and small business networks) but there is, as you have seen just a glimpse from your family ISP.

For the consumer/small business it is quite possible to run a big beefy PC as a "server" - the demands on it, are generally pretty low and a regular computer (with the networkable O/S installed and running) is fine (and cost effective). But as you grow and scale, the demands upon the server (traffic, storage, response times) have usually grown and the device(s) must grow along with those demands, otherwise the network is slow, unresponsive and unreliable.

Servers can range from $1000 (sometimes less) up to the "how much you got?" range. so insurance on the higher end ones is quite normal. But there is another kind of insurance that you don't see: loss of revenue insurance. a server goes down, despite your best efforts and preparations, you can buy a policy to cover the revenue that is lost (as in the case your ISP), and the cost on that is commensurate with the amount of redundancy that you have in place.

HTH