Definition
A shared IP, sometimes called a dynamic shared IP, is the standard VPN setup in which many users connect to the same VPN server and all exit to the internet from the same external IP address. From outside, all the traffic from those users blurs together at one IP. The provider may rotate which IPs a user gets across reconnects, further muddying any attempt to tie an IP to a single subscriber.
Why It Helps Privacy
An attacker observing a destination service sees thousands of unrelated requests coming from one IP and cannot easily attribute any single request to a specific user. Even if the VPN provider were ordered to identify the user behind a specific session, the simultaneous-user fingerprint problem makes it nontrivial. This is why anonymity-focused providers (Mullvad, IVPN) prefer shared IPs and treat dedicated IPs as a separate, less-private product.
Trade-Offs
Shared IPs trip up some legitimate uses. Banking sites may flag the unusual pattern of many users on one IP and demand additional verification. Captcha systems may issue more challenges. Streaming services may detect and block IPs that handle obviously elevated user counts. For privacy, shared is better; for convenience and consistent access to certain services, dedicated is sometimes worth the privacy cost.