In the most simple of terms an analogy using water flowing through pipes gives the easiest explanation of bandwidth, the wider the pipes (i.e. higher bandwidth) the more water can be moved per second (or data).
So Bandwidth is the amount of data passage per second and is generally measured in Gbps (Gigabits per second).
It is easy to confuse bandwidth, i.e. the speed of your connection with data transfer allowance, which is the amount of data that can be transferred too and from your server or web site per month and is measured in Gb. Most web hosts actually incorrectly use the term bandwidth in place of data transfer allowance, and it is important when choosing a web host, or a web hosting plan that you have a rough idea of the amount data transfer you will require.
Put simply each time somebody looks at a page from your site they download that page from your server, using up some of your data transfer allowance, if your average page size is 100kb and each of your 100 visitors a day looks at say 4 pages then per day you are using 40Mb which equates to a transfer of 1.2Gb per month. Unfortunately customers visiting your site are not the only ones to use up your data transfer, sending and receiving email, uploading new pages to your server, and believe it or not GoogleBot, MSN Bot and the Yahoo! Robot to name but a few of the countless spiders out there, all use up a portion of your data transfer depending on how many of your pages they spider. In-fact the various web spiders out there can use up a significant amount of your data transfer especially when it is in it’s infancy as they attempt to categorise it for production in organic search results sometimes spidering your web site up to 10 times a day. It is possible to tell these spiders not to crawl your site, not to crawl specific pages or not to follow specific links but that is beyond the scope of this discussion, and generally they are your friends because it is these spiders which will get you listed in the major search engines and ultimately drive customers to your site.
So, the more bandwidth/data transfer the better?
Yes, decide how many visitors you ideally would like/can cope with and then choose a
package with twice the bandwidth you think you need, this serves two purposes, firstly and most importantly it allows you room to grow. Secondly having more bandwidth than you need means you are ready for any surges in popularity you may enjoy, and will avoid having to pay any excess data transfer charges (usually around $2/£1 per Gb).