Well, I have a pretty powerful desktop that cost a few thousand USD, but it bogs down with just a few people using it. While some read/write applications are not that demanding of system resources, if you are using modules where 50 people are writing data to the database at the same time (like forum, quiz, chat) then the demand for system resources can get pretty high*.
But...perhaps this shouldn't suprising - afterall, the database has to find space on the disk to write this data coming in from all these different sources, do it securely, not lose or corrupt anyone's quiz answers or forum posts, etc. Authenticated users need to have their credentials checked when they log-in, and every URL they try to go to we have to see if they have permission to see the page there, and what they should see on the page (can they edit the quiz or just take the quiz, or have they already taken the quiz, etc.)
Most standard web hosts are set up to handle mostly one-way delivery of static web pages - the web page viewers are just looking at text and pictures, not logging in and not getting custom pages delivered depending on their role, and not writing lots of data back to the web server - the $10/month hosts are planning and pricing their service with this in mind- and putting hundreds of sites on a single machine (that likely isn't much more powerful than our desktops) - that works ok when most of the sites are static web pages, in these cases then a single machine can handle hundreds to 1000s of viewers, (depending on how big the pages and pictures are). Even with hosts that support MySQL or other RDMS, the low cost ones are not pricing or building their systems to handle large numbers of logged in users writing to the database.
By contrast, Moodle partners are experienced in running read/write applications in general, and Moodle in specific - read/write applciations as a type require much more in the way of server resources and specifically much more resources on the database side as well as staff expertise in building and managing these. If you look at pricing for delivering these kinds of services reliably, most Moodle partners are well in line with industry standards for read/write application hosting, and often offer additional Moodle specific services & skills that can prove worth having.
*It's important to define "concurrent users" -are these 50 people logging in to take the same quiz at the same time and finishing the quiz at the same time? Are they all in one chat room? Or are they 50 people who will show up during the same 24 hour period, but not likely at the exact same place and time?