In the context of SharePoint, the term 'farm' is used to describe a collection of one or more SharePoint servers and one or more SQL servers that come together to provide a set of basic SharePoint services bound together by a single Configuration Database in SQL.
Farms can range in size from having everything (all SharePoint roles and SQL server) on one machine to scaling out every individual SharePoint serve role onto dedicated sets of servers. A farm the highest administrative boundary for SharePoint and everything that happens inside SharePoint happens in a farm.
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