It's quite common, though. Mind you...I think it is a horrible practice...but it is done...most easily with RVskin. I have no idea how hard it is to manage or anything..saw it was a bad idea and moved on.
At the very start of this adventure many moons ago...I got a account on a setup that was like this:
The primary problem is this: look how many people are affected if there are server/network problems. If you still want to learn more...
take a look here:
Scroll down to the bottom...they talk about it a little more and call it reseller granting.
In my case...with the account I had signed up for just to see how (if) it worked...they had a third-party cgi script that did the..umm..."Magic". Well...it didn't want to work. It took a long time for them to sort it out.
No..a normal reseller there is only two tiers below you:
It's not so much how many are affected but how many there are in general. As a reseller you tend to make full use of what you have. Offer cheap prices usually results in overselling for the host that owns the server, overselling for the reseller and then consider yet another layer of your clients and you'll see where I am going with this. Whether you yourself oversell or not doesn't make much difference. You're still all packed into a single server.