Asked this question by a software provider. How would I know? What's the difference?
One quick follow up, as I've been asked this by Vendors before also...
In many small to medium size shops that use traditional client / server software, a software package (including client / server / db) may be installed on a dedicated server, running only that software. Additional client applications may be installed on other client computers and configured for accessing the dedicated server.
Terminal Services is, like Bart mentioned, a virtual desktop-like product, allowing many users to login to a Windows RDP / Terminal Server and run a desktop session. Some software client applications require special configuration settings when installed in a Terminal Server environment, and my guess was that your provider was asking you how you wanted to run the software so they could determine if any special configuration would be needed.
I've run some medical billing systems (MediSoft, AltaPoint) that require special configurations when installed on a Terminal Server, and simply won't work properly if installed using normal configuration options. Depending on the software you're evaluating, this same concern may apply to you.
Dedicated server-the hardware is just a computer running your software, meant to run just one person logged in at a time at the console.
Terminal server-Probably Windows, it allows multiple users to sign in and run desktops remotely, so one server is supporting 2+ sessions at a given time.
If the computer is turned off, one desktop goes poof. If the terminal server is shut off, you have 20 users scratching their heads wondering what happened to their desktop session.