There are 6 product types in Magento Community Edition:

Simple – basic products. can have options (no inventory tracking on options)

Grouped – two or more existing products sold together.  no special group pricing here unless you use shopping cart price rules.  also, no custom options.

Configurable – product with variants that require inventory tracking

Virtual – products that are neither shippable nor downloaded (think of services, subscriptions, warranties, etc…)

Bundle – aka “build your own”.  two or more simple/virtual products sold together with options. special pricing is supported.

Downloadable – self-explanatory.

Details and examples for each type of product can be found at:
http://www.magentocommerce.com/wiki/modules_reference/english/mage_adminhtml/