The most common networking medium today is Ethernet. The most popular Ethernet uses 4 wires, 2 for sending and 2 for receiving, to provide 100M full duplex bandwidth. The equivalent to 100M Ethernet is 802.11g WiFi, which provides 54M half duplex bandwidth.
If you have just 2 computers with Ethernet adapters, the simplest thing to do is to connect both with a cross-over cable. If you have 3 or more computers, you'll likely get a switch or router, and connect each computer to that, one Ethernet cable / computer. With full duplex switched Ethernet, you'll get a total of 200M bandwidth in each conversation between a pair of computers - 100M sending, and 100M receiving. As you add computers and Ethernet cables, the total bandwidth provided by your network grows. This is why we say that an Ethernet network is scalable.
Wifi, on the other hand, is not scalable. With your computers connected thru WiFi adapters, whether directly to each other (ad-hoc mode), or to a WiFi router (infrastructure mode), all computers must use the channel together. No matter how many computers you have - 2, 3, or more, your computers will have to share the channel. And if your neighbour has a WiFi LAN on that channel, your computers will have to share the channel with your neighbours WiFi LAN.
By saying "share the channel", I am saying that, when your WiFi router is transmitting, no other computer or router within range of your router can transmit. Only one device - computer or router - can transmit over any channel at any time.
To share the channel, a WiFi device uses a strategy called Carrier Sense Multiple Access/Collision Aviodance (CSMA/CA). CSMA/CA, which is similar to a strategy previously used by classical (pre-switched) Ethernet, is not an efficient strategy.
- Each WiFi component has to listen to the channel for some amount of time, before transmitting, to ensure that nothing else is currently transmitting. Precious portions of your 11M (54M, 128M) bandwidth are wasted, when listening.
- Even with each WiFi component listening to the channel before transmitting, it's always possible to have a collision, when two or more components pick the same time to start transmitting. When there's a collision, both components will have to retransmit; more of your bandwidth is wasted, when retransmitting.
With Ethernet, if you use the proper equipment and design your network within limits (mainly, with each computer connected, by no more than 100 metres of Cat-5 or better cable, to the router or switch), you're pretty much guaranteed 100M bandwidth. With WiFi and CSMA/CA, the general estimate is that you will get 1/3 - 1/2 of the stated bandwidth. And that only involves your computers and router, with your router managing the relationship. When your neighbour's WiFi LAN becomes involved (and both routers have to manage a peer-peer relationship), your channel availability, and bandwidth, drops further.
There are 11 802.11 channels, but only 3 do not overlap. To minimise interference with other WiFi networks, everybody should use only channels 1, 6, or 11.
Non Overlapping Channels
Now, 802.11b and 802.11g are mature, ratified standards. Each manufacturer of standard equipment designs it to perform in a predictable way, so if your WiFi router has to share the channel with a router made by another manufacturer, it will perform properly. But 802.11g doesn't provide enough bandwidth, so the manufacturers have developed a new standard, 802.11n. The new standard was only recently ratified by the various WiFi vendors, and this will limit its effectiveness.
As you increase the effective size (area / volume) of your WiFi neighbourhood, your WiFi components will be able to detect ("see") more WiFi networks using any channel. Since only one WiFi device can transmit at any time, your WiFi network will spend more time waiting to use the channel. When simply waiting becomes unsuccessful, it will spend additional time recovering from collisions. More waiting / collisions = less effective bandwidth = slower file transfers. Pure and simple.