WHAT IS COLOCATION?
Colocation allows you to place your server machine in someone else's rack and share their bandwidth as your own. It generally costs more than standard Web hosting, but less than a comparable amount of bandwidth into your place of business. Once you have a machine set up, you take it physically to the location of the colocation provider and install it in their rack or you rent a server machine from the colocation provider. That company then provides an IP, bandwidth, and power to your server. A collocated server is owned by the user and is housed in a rental space along with the servers of many other companies and individuals. In other words, with a dedicated server you rent the server and with a collocated server, you rent the space to house your server. Each option is more cost effective than purchasing and housing the server on your own, but there are major differences in what you can and cannot do with the equipment.
You can refer this URL to know more: https://www.interoute.com/what-colocation