According to Wikiperia (svchost.exe):
In the Windows NT family of operating systems, svchost.exe (Service Host, or SvcHost) is a system process that hosts multiple Windows services. Svchost is essential in the implementation of so-called shared service processes, where a number of services can share a process in order to reduce resource consumption. Grouping multiple services into a single process conserves computing resources, and this consideration was of particular concern to NT designers because creating Windows processes takes more time and consumes more memory than in other operating systems, e.g. in the Unix family. However, if one of the services causes an unhandled exception, the entire process may crash. In addition, identifying component services can be more difficult for end users. Problems with various hosted services, particularly with Windows Update, get reported by users (and headlined by the press) as involving svchost.