What is Sandbox Solutions in SharePoint 2010?

1. Sandbox solution is a new feature introduced in SharePoint 2010. 
2. Technically speaking SharePoint solutions run in seperate worker processes and not in w3wp.exe. So It doesn't require IIS Reset or Application Pool Recycling. 
3. Without disturbing the SharePoint site, Sandbox solutions can be deployed. 
4. Only thing while deploying new version of Sandbox solution over existing solution, SharePoint will display No Solution found error in Sandbox Webparts on the page. 

Sandbox Processes
Here the processes which required for Sandbox solutions.

1. SPUCWorkerprocess.exe - Sandbox Worker process service which is a Seperate Service Application which actually executes Sandbox code. It should be started in every farm to use Sandbox solutions.
   
2. SPUCWorkerProcessProxy.exe - Sandbox Worker process proxy which is working as a proxy for Worker process and takes care of Sandbox code execution. It can also serve to other farms if configured. Basically it helps site administrator for load balancing.
   
3. SPUCHostService.exe - Sandbox User Code Service takes care of user code in Sandbox amd it can be started in the farms where to use Sandbox solutions.

Sandbox Limitations
As I said before, Sandbox is a secured wrapper and it has restrictions on code to run in SharePoint environment. Few Key limitations which developers should know are listed below.

1. No Security Elevation - RunWithElevatedPrivileges which runs the specified block of code in application pool account(typically System Account) context is not allowed in Sandbox code. SPSecurity class also not allowed to use in Sandbox.
   
2. No Email Support - SPUtility.SendMail method has been blocked explicitly in Sandbox, However .Net mail classes can be used to send mails. Additionaly sandbox won't allow to read Farm SMTP address. So developers has to specify the SMTP address in code itself(may be some other workaround).
   
3. No Support to WebPartPages Namespace - Sandbox won't allow to use Microsoft.SharePoint.WebPartPages namespace.
   
4. No Support to external Webservice - Internet web service calls are not allowed to ensure security in Sandbox solutions. Allow Partially Trusted code also can't be accessed within Sandbox.
   
5. No GAC Deployment - Sandbox solutions are not stored in File System(Physical path) and assemblies can't be deployed to Global Assembly Cache(GAC). But it's available on C:\ProgramData\Microsoft\SharePoint\UCCache at runtime. Note the ProgramData is a hidden folder.
   
6. No Visual Webparts - Visual Studio 2010 by default won't allow to create Visual Webparts to deploy as sandbox solution. But with Visual Studio PowerTools extensions(downloadable from Microsoft MSDN website) Visual Webparts can be developed and deployed as sandbox Solutions.