TL;DR Let's remember - Magento wasn't built for this. But is it possible? Sure.
The type of functionality that you describe is called a Marketplace and there are a couple of plugin providers who have offerings at differing levels of integration.
While this is entirely possible within the realm of Magento without you having to offer admin access up to scores of untrusted individuals it seems that (at the time of this writing) there is no freely-available means of configuring Magento to allow multiple vendors to sell inventory of a single, canonical, product. This will require you to purchase a 3rd-party offering and all of the potential upsides and downsides that come with it.
To that end if you're not comfortable with such a proposal I would recommend that you look hard at eBay and Amazon's marketplace offerings. There are SaaS providers, too, that span across all sorts of technologies.
You're still here? Good.
If you're still interested in using Magento for this type of functionality, I do have a couple of suggestions for you.
I have no personal experience implementing either of these options but have done extensive discovery and have talked with both of the developers and teams from Unirgy and Merchantry.
Unirgy uMarketplace:
http://www.unirgy.com/products/umarketplace/magento-multi-vendor-marketplace
Pros:
- Fixed pricing. No sales team and quotes and haggling.
- Magento Plugin, vendors register plugins to your site and are listed in Magento Catalog
- Top-notch developer and extremely helpful support
- Features are spot-on with your requirements and even go so far as to offer CSV upload to merchants
- Provides merchant portal, shipping label generation, sales reports
- Great upsell features like allowing multi-condition products (new/used) to be sold one-off
- Admin features to merge product offerings and moderate product posts prior to going live
Cons:
- Some classes have IonCube encoding
Some may bawk and say it's expensive; I say it's cheap for the functionality, IMHO, and if you run this type of Marketplace site and require these types of features I would hope you have the revenue to justify this type of investment.
Merchantry
http://www.merchantry.com/
Pros:
- SaaS solution used by major players (think Amazon)
- Built for scale. Hundreds of thousands, millions of products
- Massive API
Cons:
- No fixed pricing. Sales team and estimates and haggling and lawyers (oh my)
- VC funded (series B May 2013)
Best Answer
This is not really Magento related, more of a discussion of terms or semantics. However, to most people the distinction is that in multi-vendor you see that the website offers products actually sold by other parties. With dropshipping, the customer thinks he's buying directly from your store, but actually you're only handling the order on-site and the rest is done in the background by a third party.
To elaborate:
In a dropshipping setup, you sell products on your store that are actually handled by third parties. You handle the order-process on your website, after which you forward the order to the third party. They are the ones actually sending the order. In most cases, the client ordering doesn't know about this. The third party sends the package under the name of your website, with your logo, etc.
In a multi-vendor setup, customers can choose from several vendors that are selling on your website. Good example are Etsy and eBay, which offers a multitude of tiny shops run by several individuals.
Technically, the most important point is that a dropshopping site is maintained by one person or company. You aggregate products from other vendor(s) and 'sell' these on your site. For a multi-vendor site you need to handle a store for every vendor, provide them with logins to handle their personal store, etc.