There are two modes of operation in Windows 2003 environment. Basically a computer can work as workgroup computer or domain computer. Most home and small business environments will be Workgroup, and most enterprise businesses will run in domain mode.
Basically when you install Windows 2003 server, by default it is a workgroup computer. Workgroup environment is suitable for a limited number of computers (usually no more than 10 computers) in close proximity. However, if the number of computer is huge, it is advisable to join individual computer into domain.
In Workgroup environment, each computer store ID and password locally. There is no centralized management in this case. A user needs a user account on each computer that he/she requires access. This means, if a user needs to access to several computers in the network, each of this computer will need to have the ID and password of the user store locally. It is not an easy task for administrator if there are many computers need to be managed and configured. It may take up a lot of time to just setting up account in various PCs for a new user. Changes to user accounts, such as changing a user’s password or adding a new user account, must be made on each computer in the workgroup. As a result, passwords can become out of synchronization, if changed happened on one computer and not others.