When talking about Products in the context of Commerce, we're talking about the actual product records with the SKU, name, description, price, stock and weight.
The front-end representation of these products may be wildly different, containing image galleries, reviews, variations, product specifications and custom attributes, etc. Together, we refer to this as the catalog.
Products are managed under Extras > Commerce > Products.
Commerce does not (natively) support different variations of the same product, for example "red" or "blue" shirts. This is by design. Each variation is considered a unique product, with its own SKU, name, stock, price and other information.
That does not mean that your catalog can't support product variations. You just need to set up your catalog so that a single page in your catalog will list the different products that are associated with it.
Product Storage Types
There are custom product types, such as the Resource Products, where the product information is actually managed elsewhere. When you edit or create such a product in Commerce it only lets you edit the target that holds the information.
These product storage types are useful in cases where you already have a catalog built, and you want to easily integrate Commerce with it. In cases where as a result you don't need the Products tab in teh dashboard at all, the Hide Products Module can be useful to remove the tab.
As a general rule of thumb, only use custom product storage types when you're linking with an existing catalog.
Product Behavioural Types
Another type of custom products are those that have special behaviour. An example of this is the Product Bundle type. Product bundles allow the merchant to select other existing products, and to sell those in a bundle. The price is set per bundle, but stock and weight is automatically calculated