Email hosting is a service that runs email servers. Put simply, if you own a domain name and want email service on that domain name, you would need to sign up for an email hosting service.
Most web hosting companies provide you with email hosting as well; however, the email hosting service provided by web hosting companies for the most part only supplies you with POP3 email and the basics in spam/virus protection and other features. Additionally, some of the free email hosting providers are ad-supported. Again, if you own a small or medium sized business (SME), then you should not want to operate your business email using one of these providers since the email service is typically sub-par as compared to a professional email hosting service.