To add to this:
I can give some examples using (sorry!) SPS 2003. We have one portal
which is still pretty much w/ out of box setup. From the "sites"
area, "Create new site" starts a new site collection. Once I'm in a
(WSS) root-level site, any time I "create" a site or workspace
beneath it, I'm adding subsites that ultimately will make up the
site collection. The site collection must always start w/ one top-
level site.
Further, there are certain things that are available only at the
site collection level. Site and list template galleries and web part
galleries are maintained at the site collection level. You cannot
have a template just for one subsite- it will be available to all
sites w/in the collection, and to manage these, you must go up to
the top-level site to get to the collection admin options.
Also, a site collection administrator is all-powerful w/in all sites
in the collection. You could technically have someone be an
administrator of a site w/in a collection, even the top-level site,
but that person wouldn't necessarily have admin power (or even
access) in other sites in the collection if inheritance is broken.
BUT whoever is listed as a site collection administrator can get
into and do anything to any of those sites w/in the collection.
From the site collection administration, you can view the site
hierarchy, usage summary, storage space allocation, site collection
user info (i.e. all users of all sites in the collection), and
configure the connection ("up to" link) to the portal.
From central admin, you do things like lock sites, set quotas, etc.,
all at site collection levels.
I'm an intranet manager w/ full admin power of our portal, but only
via the UI. I'm not in IT, so I don't do anything w/ STSADM, etc.
I'm sure I'm missing a lot of "site collection" level info, but this
may help some of the less-technical folks out there.