Hi keanejar and welcome to SaleHoo
Liquidation or Surplus as it is also called, is where a retailer, wholesaler or manufacturer disposes of stock cheaply for quick cash flow. Now there are quite a few reasons why this might happen, example: Old stock taking up valuable shelf space, customer returned stock, damaged stock that can't be sold as new, going out of business, insurance write-off and quite a few others, but that should give you the picture.
The provider of the stock sells the stock that has become surplus to their requirements cheaply, and people/companies called liquidators will buy this stock by the truckload (on most occasions) and then on-sell to the general public for them to resell through various avenues.
Because there are so many different types of stock when it comes to liquidations, it's important you understand clearly what you are purchasing. It might be really cheap, but it may also not be worth you buying it.
Let's consider electronics for this equation. Very popular product genre among consumers, so the chances of old stock of a popular item being liquidated is minimal, therefore if you are looking at buying a pallet of electronics from a surplus provider without knowing in what condition this products are in, chances are you will be getting a hight percentage of products with faults.
Faulty equipment is a very popular reason for liquidating that type of stock. Even customer return loads will usually have a very high degree of faulty units as customers don't return electrical goods for reasons they will return clothing.
You might take a shirt back because it's the wrong size, wrong colour, wrong design, missing a button, just changed your mind or your son hated it. So if you were buying a load of containing customer return shirts, then the chances of the products being perfectly good are much higher.
It all comes down to serious research when dealing in liquidated stock. Know the product your are buying as well as you possibly can, and you can only do that by visiting them in person or asking as many questions as it takes!
OK, so that is essentially liquidations covered for you. Drop Shipping is a no or low cash outlay way of doing business. A Drop Shipper holds products in stock, you pay to advertise them through your preferred marketing avenues such as eBay and so on. Once a sale is made, you take your profit from the sale out of what the customer has paid you, then pass on the cost of the product to the Drop Shipper, along with shipping instructions and the Drop Shipper then sends the sold product to the end customer, not to you.
Wholesale, this is a volume based purchasing option. The more stock you purchase from a wholesaler, the better the price you receive for that stock essentially. Of course the cheaper you can buy a product for, the more chance you have of competing and making money!
So those are the basics of all three platforms, each have benefits and pitfalls, and research is required to examine which platform would best suit you as a supply source.