If you are coming for one or two weeks, even a month then you may probably be best off staying at a hostel or resort. Everything you need will be catered for, most resorts have a restaurant and are close to amenities and hostels are in the hub of all things.
If you are coming for longer then it is best you consider a house or bungalow. It means you can have a home from home which is good if you have children also. It may also work out better in terms of cost, you can get more comfort for your budget.
If you are on a tight travellers budget then a hostel is perfect. It may not be as comfortable and you will have to share a room with other people but you can make this part of the fun. In many hostels you cannot bring in outside food or drink so bear this in mind but you can still save money by eating at local restaurants.
On a larger budget you can treat yourself to a nice house, here on Koh Phangan you can find houses from even 5000 Baht up to whatever really! It means you will have your own space to treat like home and be comfortable.
Number of People
If you are coming with many friends then it may be good to rent a house, you could even get a pool. It means you won't disturb as many people with your antics and you can all chip in and save money.
Depending on the reason for your visit, if you are alone, will depend on whether you want to rent a house or just stay in shared accommodation. Also take into consideration your budget. If you want privacy to work on a project then maybe a house but if you’re here for fun then you could stay in a hostel and meet other solo travelers. Most hostels also have private rooms if you don't want to share.
If you want to wake up and be able to have a fruit shake and breakfast straight away on your balcony then stay at a resort.