I am trying to figure out how a single server with only one IP can host many different domains. To be more specific, how can a Cobalt (but not limited to Cobalt) host many different domains per IP. Is it using HTTP1.1 Host Headers, different ports, or something else. I just want to open it up to see how it works.

Any Ideas?

It's a feature of HTTP 1.1. The browser sends a header along with its request indicating which domain it's asking for.

The use of host headers limits the site to newer browsers, 3.0 and above, correct? If I get a dedicated server somewhere and need to share an IP between domains, then these sites might not be able to be viewed by some earlier browsers. That is the concern since I have seen some Netscape 2.0 browsers in some logs.

Yep, that is a concern. Of course, non-HTTP 1.1 compliant browsers are in a low-single-digit percentage market share these days.

Still, it's absolutely best at this point to give every domain its own IP. Most quality hosts do this.