The first model allows you to have a multi-vendor marketplace platform. It's often referred to as a store-within-a-store, which is a storefront built up of multiple sellers who have uploaded their products and are selling them via your online store, similar to Amazon or Etsy. Specific features are required for checkout, commissions, contacting sellers, as well as potentially custom features like selling advertising space, allowing escrow payments, multilingual and multicurrency, the list goes on.
The second multi-store storefront model is allowing multiple custom branded storefronts to all be connected to the same master product database, checkout cart and more.