What you described is essentially PBKDF1, which is similar to PBKDF2, but only supports a fixed output key length. It's also a decent option; just not as flexible as PBKDF2.
I was describing it in order to explain the general idea; not to explain the exact algorithm. The wikipedia article does a better job at that than I could do, but since he asked the question after the link to the wikipedia article I assumed that what he wanted was a simple explanation of what the difference is between just SHA(password) and PBKDF(password).
