It's rather easy.
Dedicated servers you lease/rent from the company and they manage them. If a server breaks, the company will replace the broken parts for free under SLA.
Colocated servers, is when you buy space in a datacenter and send in your own servers. If they break, you have to send in parts and support the servers yourself.
There are advantages and disadvantages in both cases. I would divide the two depending on your location.
I suggest to get colocation in the same city/state where you live. If you want a server out of your state or country then definitely get a VPS or Dedicated servers.
It's convenient to get a colo space where you live, this way you can personally visit datacenter and work on servers. Keep in mind this requires more investments as you have to purchase servers.
Another point to look at is your time frame. How long do you need servers for. If you think you'll be using them for more than a year, let's say 2-3 years, it's cheaper to purchase. If less than a year, then a dedicated server is the best way to go with.
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