So if you have been developing or using SharePoint you have definitely come across these terms. The best way I have come up with to understand them is to compare them to a Condo Complex (or Flats as known in India J)

Web Application

An empty piece of land is the Web Application. You have a placeholder for building something, but as such it is pretty much empty. This is true in case of a SharePoint web Application. When you create a web application using Central Administration, *unless* you create a Site Collection, you can't access it. If you try tying the web application URL in the browser and try to navigate to it, it will throw an error.

Site Collection

Your entire Condo Complex is your "Site Collection". Some of the stuff in the Condo Complex (Common lawn, Patio, Garden, driveway) are shared by everyone in the Condo. This is similar to "Site Collection" features, Web part galleries that are shared by everyone else. An interesting thing is Security. One of the reasons that you might want to create a "Site Collection" would be for Security reasons. Security is *not* shared among different site collections. So if you had a different Site Collection for IT and HR, you would have to create separate security configurations for people who need to access both the sites. In a condo this would be like the "key" to the Common front door. Unless you have that common key, you can't get into the building, and you definitely can't get into any other Condo Complex with the same key.

Site and Child Sites

Your condo is equivalent to the "Site". Only you have access to your house and depending upon how many good friends you have, some of your close friends might have the key to your house! Now within the house, you might have certain rooms that are not accessible by everyone. For example, you might not be able to get into your 14 year old sons/daughters room without his/her permission!

Lists and Document Libraries

The cabinets or Lockers in the house that only certain people might have access to are the Lists! A good example of a List common to everyone might be the refrigerator.

Hopefully this helps someone trying to understand these terminologies. An awesome diagram that I have found useful is one by Sharee English found at here . It is an excellent article describing the decision around deciding on web applications, Site Collections, Sites for an enterprise!

Enjoy!