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This is a part of How to Choose a Graphic card guide .


First You need to know what a GPU is ?

A GPU is a unit which does all the graphics related processing . It has its own graphical processor and sometimes its own ram and its own cooling solution like a fan



An integrated GPU is different from a dedicated GPU in the fact that it does not have its own ram and uses the system ram for its processing.These are cheaper and mostly not fit to play modern Computer games .
Most recent intel motherboards come with Intel's integrated graphics solution .

Advantage
-->They are cheaper
-->They come with the motherboard itself

Disadvantage
-->They slow down your system[as they use system ram ] unless you have a lot of ram
-->Their performance is far inferior to a dedicated graphics

Buy an integrated graphics if you r going to use the computer for activities like watching a few dvds , playing a few old games and using softwares like Adobe illustrator , Flash etc

Example for an integrated graphics cards
GMA X3000

A dedicated Graphic card has its own Memory , Cooling solutions ..... They are generally removable , but not nescessarily .... They interface with the motherboard by using expansion slots such as AGP , PCI-E etc i.e you need an AGP slot or PCI-E slot in your motherboard to connect a removable dedicated GPU

Using Nvidia's Scalable Link Inteface(SLI) , or ATI's ATI Crossfire Technology you can use multiple dedicated cards in a single PC. For this you need appropriate motherboard

Advantages
-->It enhances system performance
-->Can play latest games , enhanced video playback support for Animation softwares such as MAYA

Disadvantage
-->Costly
-->Too many options

Example
Nvidia 8800GT


These are GPUs which are both Dedicated and Integrated at the same time ! . These have dedicated [ram] memory but also use system [ram]memory .

Example: The Nvidia 8500Gt card [512 MB] is a 256mb dedicated+256mb Integrated card !

Also cards with memory such as 768mb are def hybrid cards

Screenshots courtesy
Harvik780 and T15 users from ThinkDigit forum