"Drop shipping" means that you keep the product in stock at your facility, the seller makes the sale, and the seller sends the order to you. You then ship the product directly to the end customer and charge the seller your price. He collects the full price from the end customer and pockets the difference as profit.
The advantage for the seller is that he doesn't have to warehouse the product and, usually, he doesn't pay for the product until he has a buyer.
Retailers who enter into drop-ship arrangements with manufacturers or distributors understand (or should understand) that they're going to pay more because the manufacturer or distributor is incurring the carrying costs.
I drop ship a ton and I offer it to my customers. It is very usefull. I also offer "Blind Drop Ships." The package will leave my warehouse, but it will appear on the shipping label as if my customer is sending the package direct to their customer. The packing slip will not contain my name, etc.