As opposed to the host system everyone will connect to the server rather than one host player. It's more fair for everyone in multiplayer and gets rid of host advantages along with making your connection matter. Cuts own on lag big time. No more waiting for host switches, more players in the game and the ability to choose whatever you want to play.
How does that allow more players? There are plenty of games with 64 players or more without dedicated servers... BF3, MAG, Resistance 2... I could think of some more.
So dedicated servers are the same thing? I'm playing BF3 now on my PS3. Yeah it has a list of servers, but isn't the server this guy rented being hosted by him?