I share you frustration. I’d expected much more help from such a large user base…
I couldn’t find a simple organized document about the issue so I tried to summarize information from some resources and add some from my short exprience.
There are 6 types of products in the latest version (1.2+): Simple, Grouped, Configurable, Virtual, Bundled and Downloadable product.
Simple Products are basic product.
Grouped Products display several products on one page. For example - if you’re selling chef’s knives and you have the same knife in four sizes, you can make a grouped product to display all four sizes. Customers can select the size(s) they want and add to cart from this page. Another example would be a themed bedroom set - you can create a grouped product and sell the sheets, comforter, and pillow cases all from the same page.
Configurable Products let your customers select the variant they desire by choosing options. For example, you sell t-shirts in two colors and three sizes. You’d create the six variants as invidivual products (with their own skus) and then add these six to a configurable product from where customers can choose size and color, then add to cart. If desired you could also have customers search for “red medium t-shirt” and land on the specific page for this variant.
Bundled products are products that consists of some simple products. For example, a personal computer may consists of a case, hard drive, memory etc. and the customers can select the type and size of the drive and the memory.
Downloadable products are products that can be downloaded from the store (such as software, music and movies)
I couldn’t find any information about virtual products…
Hope this helps…