You may have seen these two terms, Data Transfer & Bandwidth used synonymously, especially when discussing internet speed, web hosting packages & features and other such topics. While each term can be defined with respect to the other, they are technically quite different.
Bandwidth is defined as the amount of data that can be transferred in a given time period (typically measured in seconds), whereas Data Transfer refers to the actual amount of data transferred between two points or computers or in other words, the traffic generated.

Thus Bandwidth is the rate of data transfer for a given computer or device.

So the question here is: thousands of hosting providers are wrong?

As an illustration, consider an expressway/highway in your part of the world. Bandwidth refers to the number of vehicles that can possibly travel from one place to another in a given time, and Data Transfer refers to the actual number of vehicles that completed the journey.
Just as a bigger expressway with many lanes will allow more vehicles to pass in lesser time, similarly a high capacity data pipe or internet connection will allow a higher bandwidth. Also, if there are greater number of vehicles on the road, the speed reduces overall. Similarly, if a lot of data transfer is taking place simultaneously, the bandwidth will reduce.

Just as bigger vehicles such as rigs, trailers, tend to lower the average speed on the road, bigger data packets for multimedia applications, result in a slower downloading/uploading rate.

The amount of bandwidth deemed adequate or required has really changed over the last few years as internet applications have moved from simple text transfers to full blown multimedia and interactive applications and high graphics games.

In a relatively short span of time, typical bandwidths have moved from 2.4Kbps to 56Kbps for dialups and more than 512Kbps for broadband connections. Ofcourse these are for regular consumer use. Commercial users have bandwidth capacities in 100s of MegaBytes and even GigaBytes.

Concurrent advances in networking, fibre optic and computing technologies have acted as a catalyst resulting in improved bandwidths.

Similarly, we have seen a great increase in Data Transfer amounts which were earlier limited only by the bandwidth. With improved computers able to serve rich content concurrently to a high volume of visitors to a website, data transfer amounts can be in Gigabytes or even more.,

Some typical bandwidth capacities for the common data transfer modes:

Mode Typical Maximum Rates
Dial up (using standard Copper Cabling) 56Kbps
Local Area Networking (ethernet cabling) 10/100 Mbps (for common setups)
ISDN 64 to 128 Kbps
Broadband (Cable & DSL) 512 Kbps to 1.5 Mbps
Fibre Optic Cables 100s of Mbps to Gbps
Wireless (Wi-fi) 802.11b 11 Mbps
Wireless (Wi-fi) 802.11g 54 to 108 Mbps (2.4 Ghz Frequency)
Wireless (Wi-fi) 802.11a 54 to 108 Mbps (5 Ghz Frequency)


Bytes v/s bits:

Most Internet service providers or ISPs and Webhosting companies will mention bandwidths in Kilobits per second. Whereas browsers and other file transfer agents show the speed in KiloBytes per second.

You may observe this and blame your ISP for falsely claiming high speeds. If you divide the KiloBits/second value by 8 (since 8 bits make up for a byte) and allow for some loss in transmission, you can get the true value of your actual transfer rate.

Hinderances to Data Transfer rates under normal conditions:
While advertised data transfer rates are based on laboratory calculations (similar to automobile manufacturers claiming X miles to a gallon, but you actually getting only X-y), the actual speed of transmission of data depends on one or more of the following.

a) Configuration of you PC (Processor, RAM, Number of simultaneous transfers taking place).
b) Packet Loss and Signal loss.
c) Server limitations.
d) Concurrent users requesting the server for data.
e) Hop counts and Latency.
f) Routing problems.

Collected from Web!