Garage - A room attached to the house where the cars / trucks / motorcycles sleep at night. It should look good, be kept clean and free of junk (junk includes washers/dryers/lawn equipment/toys/sports equipment and anything belonging to the wife - other than her car). If it don't meet this criteria, congradulations you have a storage facility, not a garage.
Shop - This is the building where all the grinding, welding, fabbing, working, vehicle maintainence gets done. It should be well stocked with tools and equipment related to working on vehicles (which are parked in the garage). There should be plenty of areas for fab work and plenty of work benches and tool boxes.
Shed - This is the smaller building out back that houses lawn equipment, toys, sports equipment, herbicides, pesticides, grass seed, rakes, shovels, chain saws, wheel barrels, bicycles and all the other **** that people who own attached storage areas pack around the cars that that also stored in their attached storage area.
Thats my take on it, anyway...