Yep, that's exactly it. Of course, there's a consequent increased demand on the number of connections people can make etc., but in practice I've found relatively few problems with this. The situation could be different if you're running several very popular programs, though.
For example, on one of my sites I am using PHP/MySQL with a classified ads program, two InVison boards, and a user management program (AMember). On another, I have Gallery, Invision and e-classifieds. (But doesn't Gallery use its own database? I have no record of it using tables in my MySQL database on site. Can someone clear this up for me?)
Ideally, a separate database for each is a better solution, but being limited to one database is quite a common occurrence on ISPs, which is why so many programs make provision for prefixs.
HTH,
Tony