In chain terminator sequencing (Sanger sequencing), extension is initiated at a specific site on the template DNA by using a short oligonucleotide primer complementary to the template at that region. The oligonucleotide primer is extended using a DNA polymerase, an enzyme that replicates DNA. Included with the primer and DNA polymerase are the four deoxynucleotide bases (DNA building blocks), along with a low concentration of a chain terminating nucleotide (most commonly a di-deoxynucleotide). The deoxynucleotides lack in the OH group both at the 2 and at the 3 position of the ribose molecule, therefore once they are inserted within a DNA molecule they prevent it from being further elongated. In this sequencer four different vessels are employed, each containing only of the four dideoxyribonucleotides; the incorporation of the chain terminating nucleotides by the DNA polymerase in a random position results in a series of related DNA fragments, of different sizes, that terminate with a given dideoxiribonucleotide. The fragments are then size-separated by electrophoresis in a slab polyacrylamide gel, or more commonly now, in a narrow glass tube (capillary) filled with a viscous polymer.
An alternative to the labelling of the primer is to label the terminators instead, commonly called dye terminator sequencing. The major advantage of this approach is the complete sequencing set can be performed in a single reaction, rather than the four needed with the labeled-primer approach. This is accomplished by labelling each of the dideoxynucleotide chain-terminators with a separate fluorescent dye, which fluoresces at a different wavelength. This method is easier and quicker than the dye primer approach, but may produce more uneven data peaks (different heights), due to a template dependent difference in the incorporation of the large dye chain-terminators. This problem has been significantly reduced with the introduction of new enzymes and dyes that minimize incorporation variability.
This method is now used for the vast majority of sequencing reactions as it is both simpler and cheaper.  The major reason for this is that the primers do not have to be separately labelled (which can be a significant expense for a single-use custom primer), although this is less of a concern with frequently used universal primers.  This is changing rapidly due to the increasing cost-effectiveness of second- and third-generation systems from Illumina, 454, ABI, Helicos, and Dover.