Magento supports installation of modules through a web-based interface accessible through the administration area of a Magento installation. Modules are hosted on the Magento eCommerce website as a PEAR server. Any community member can upload a module through the website and is made available once confirmed by a member of the Magento team. Modules are installed by entering a module key, available on the module page, into the web based interface. There are three categories of modules hosted on Magento Connect:
Core Modules
Community Modules
Commercial Modules
Core and Community modules can be installed via the administration area. Commercial module pages provide price information and a link to an external website.
reference: http://jaseir.com/magento/explain-about-the-modules-of-magento/
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