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what is a hub?

A hub is basically a multi-port repeater. It simply splits the cable into several, so it can be used to connect a few computers on a home/small business LAN.

A switch/switching hub is a more advanced version - it can be found for almost the same price, but it's more efficient if all the computers are transmitting at the same time; it basically creates a virtual channel between the two nodes that are communicating, so instead of broadcasting the data to all of the other nodes, and all except one rejecting it because it's not destined for that node, it sends it only to that one. That way, the load on the other NIC's is lightened, and performance increases.
There's no reason to buy a hub anymore; you can find an 8 port 10/100 switch for about $17 including shipping.

A router is even more advanced, it usually does the same thing as a switch, but also handles routing (channeling data to other routers, etc).
Usually a router is placed at the connection to the internet, then switches are plugged into it, and finally computers plugged into the switches.
 
A hub operates at layer 1 of the OSI model. It basically passes signals from one station to another without making any intelligent decisions where to send it. It simply takes a signal it receives on one port and floods it out all the other ports. This is inefficient because if two stations are talking on a 10 port hub all 10 stations hear the signal and lose some of their bandwidth whether they are part of the converstion or not. On a 10MB/s hub each station shares that 10MB/s with each of the other stations.

A switch operates on layer 2 of the OSI model. It makes intelligent decisions regarding which port to send frames to based upon the MAC address. A switch operates within a subnetwork. Each port on a switch has dedicated bandwidth to it. So on a switch that supports 10Mb/s each port (and each PC connected to that port) actually gets 10MB/s worth of bandwidth dedicated ot it.

A router operates on layer 3 of the OSI model. It makes intelligent decisions for transmitting packets between networks. This is where the IP address comes into play. The router examines the destination IP address and consults it's routing table to determine the best path over which to transmit the packet. As MadMan2k stated, a router can be used on the boundary of a subnetwork and the Internet. A router has benefits over a switch because it allows NAT (network address translation), which is one feature that can make your home network more secure.

Basically, there is no reason for home users to use hubs since switches are so cheap. Also, most home routers available these days have at least a 4 port switch functionality built in so there's really no reason to purchase a switch for home use either. Just get a router/switch device.
 
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