You are asking questions about an aspect of gaming that is a science unto itself. Here's a place to get started:
https://medium.com/@narengowda/how-does-any-mmo-games-backend-work-df19b44f73a7
To answer your question about how much hardware do you need: To sum it up, there's an old saying amongst those who hod-rod cars and such, there's no substitute for cubic inches (I guess liter's in today's world). The bigger the engine, the faster you can go. Same goes for game servers. There's no substitute for hardware and bandwidth.
Running a game server on a shared host with 1gb ram and a platter style hard drive is NOT going to come close to a dedicated server with gobs of ram, an M.2 drive and massive bandwidth.
Now that being said, there was an old multi-player game from the late 80's that easily handled 16 players on a server with bullets, lasers, and gobs of other events, all on 386 machines over dial-up using just one server to host the game.
en.wikipedia.org/wiki/Netrek