What IS a server?

In the past I've been confused when I hear people talk about servers.

There are two ways to look at what a server is:

• The physical computer, whether it is offsite somewhere, or the computer you are writing code on.
• The software (computer program) that does SOMETHING (i.e. serves)

A physical server is a specialized computer that is made for the long haul. Think of commercial grade versus home owner grade.