Site Definition

Site Definition contains a server-side collection of files that defines the structure of one or more site templates.

A site definition is composed of the following:
A webtemp.xml file that defines the numbering and creation details for the various site templates that are contained in the site definition.
A separate directory that contains all of the core files used by the site definition, excluding any items that are provided through Features.

The webtemp.xml file is stored in

%COMMONPROGRAMFILES%\Microsoft Shared\web server extensions\12\TEMPLATE\1033\XML

The directory that contains the site definition files is named according to the site definition’s name and is stored in

%COMMONPROGRAMFILES%\Microsoft Shared\web server extensions \12\TEMPLATE\SiteTemplates

Customizing portal sites and other SharePoint sites using site definitions is most appropriate for third-party developers and server administrators. Because site definitions require access to the file systems of the Web server, server administrators must always be involved in the deployment of site definitions. If you are modifying areas of a portal site, then you will need to use site definitions.

Although deploying a site definition requires more work, site definitions typically perform better when cached on the file system instead of in the database. In addition, you can achieve a finer level of customization by directly editing all the schema files and not depending on the existing site definition as a site template does. Also, if you want to introduce new file types, view styles, and drop-down edit menus, you need to edit the schema files that make up the site definition.
Custom site definitions are version and upgrade independent. Subsequent upgrades to SharePoint Products and Technologies may overwrite existing default site definitions. Using custom site definitions excludes your sites from potential upgrade issues.
However, there is no easy way to modify site definitions once they are deployed. There is always the possibility of breaking existing deployed sites derived from the site definition once you modify an existing site definition. You can only add to the site definition once it is deployed.