This information was originally written on the mazinfo yahoo groups by DavidBodwell. It has been reproduced here with his permission.
Colonia — As Martha said below, they just grow like "Topsy" on land not normally considered suitable for construction and without city services. What I am unclear on is just who owned this land in the first place? Was it Federal or State land, or did folks actually buy the building lots from a private land owner? Maybe Martha can clarify this. For a "colonia" to become an official "Colonia" may take years and tears and doesn't seem to be as common today as in the past (at least in Mazatlán).
Fraccionamiento — This is exactly the same as a U.S. "subdivision". The property starts out being owned by one person or company, then is subdivided into building lots. A lot of official approvals necessary, but the result is a reasonably well planned, well laid out housing community with all the city services, paved streets, utilities, etc. (one hopes).
Infonavit — This is a type of fraccionamiento that has been approved for low income, government subsidized, long term loans. Usually—as different from a Fraccionmiento—all the houses will be built by the developer, rather than each person building their own house. The government fund that supports this is funded by a tax on the payrolls of every employer.
Fovisste — This is a developement very similar to an Infonavit developement, but the government subsidized loans are limited to government employees such as teachers, policemen, and all the other lower income government employees.