There are 2 basic categories for wood finishes; those that penetrate, and those that coat. Linseed oil, wax, "hand rubbed polish" finishes are all examples of a penetrating finish. Varnish, lacquer, shellac are examples of coating finishes. There are many different reasons to choose one over the other. Some factors:
- what type of wood
- how will the wood be used
- tools available
- skill level
In general, penetrating finishes are the easiest to apply, and the most forgiving of mistakes and easiest to repair. But they offer minimal protection against the elements, scratches, etc. Also they don't look best on soft woods, i.e. pine, fir, etc.
The coating finishes are really a progression of technologies. Shellac was the original hard coat finish, but has been replaced for the most part by lacquer and varnish. Lacquer is generally used commercially as it dries fast and can be re-coated in minimal time. Varnish is easier to apply by the average person with a brush. The downside is it takes longer to dry, and therefore more opportunity to catch dust, bugs, etc. Some of the newer water-based "varnishes", however, dry pretty quick.