Well, in the early days of the Internet there was no such thing as cheap web hosting. People either paid serious money ($25 per month was commonplace) for 10Mb or so of web space or they used free hosting from places like Geocities (now part of Yahoo).
Then along came Albanza Inc with dedicated servers with a graphical user interface. Now anyone could set up a web hosting company and sell hosting very cheaply. Servers cost about $600 per month still but you coul dput on 300 accounts, charge $10 per month and make serious profits. The market was also expanding rapidly around 1998/99 so many people became very wealthy (if they had the cash to invest in these servers in the first place).
Of course this was all back in the last century and things have moved on. Now there are many different control panel systems and dedicated servers can be rented for as little as $50 per month. If you rent one of these and put 500 customers on there at $1 per month you could be making $400 a month profit. You will spend all day supporting the customers though. This may not sound much to us but if you live somewhere like India it is as a very high salary. If you are a teenager in middle America its also a lot of extra pocket money.
The problems start when an operation like this grows beyond one server. Usually they have provided too much support to customers to attract them in in the first place. More support than any mainstream hosting company could provide. So when they need to expand they have to reduce the service level (and cause lots of customers to leave) or hire staff and stop making any profit because the low prices never had enough margin to run a proper business.
The result of all this for customers is that cheap web hosting companies appear and disappear like flowers in the desert. People wake up to find they have no web site and email, and John Doe (14) of Boise, Idaho has gone back to playing baseball with his friends or got a job in MacDonalds because it pays better.
So how can you avoid this sort of thing happening to you?
1. Don't go for ultra cheap hosts. To get any level of service you are goiung to need to pay 5 to 10 dollars per month. It just can't be done any cheaper than that.
2. Choose a reputable company. Some mainstream web hosts run discount brands to sell off their spare capacity and these are usually a safe bet. Check out http://www.myqth.com. This is the discount brand of Hostroute.com so you know it has the backing of a larger company with technical staff and thousands of customers. They are not likely to disappear.
3. Look for hosts with lots of satisified customers. Look for testimonial pages like this.
There are good cheap web hosting companies out there but you need to look through a lot of them before you will find one that will be reliable in the long term. I hope you have found this useful, and good luck in your search for cheap web hosting.