A site collection is one of the most important building blocks in a SharePoint logical architecture. Basically it's a collection of sites with a root site at the top. The root site is almost a site like any other site below it. Furthermore you can manage settings applying to all sites inside the site collection e.g.
- The available functionality,
- Common navigation,
- Security settings or
A site collection has e.g. a title, template, language and administrators.
In detail a Site Collection is much more. If you need to decide between one or more site collections you first need to think about isolating content, security & permissions or backup. At this level its easy to logically separate content in different databases which has effects on backup & restore. You can also use different application pool accounts for different web applications.
Lets see an example: You may have projects and team sites. While projects each require 10GB of storage all other sites need not more than 1GB together. Projects are archived after they are finished. Web Parts that run in team sites shouldn't have access to projects using elevated privileges. So you might want to put each project in a site collection in (a) different web application(s) and database(s).
Creating a logical architecture is a big job and requires knowledge about SharePoint objects as well as a customer who exactly knows his business requirements.
How to create a Site Collection
Open Central Administration and select to create a site collection. Add a title, an URL and select a template from the categories. Select a site collection administrator and click OK to create the site collection.