How did you define severity ratings in your project?

There are four types of severity ratings:

• Severity 1 (Show Stoppers): Severity of these kinds of defects do not allow application to move ahead. So they are also called as Show Stopper Defects.
  
• Severity 2 (Application continues with severe defects): Application continues working for these types of defects. But they can have high implications in later time of application which can be more difficult to remove.
  
• Severity 3 (Application with Unexpected Results): In this scenario the application continues but shows unexpected results.
  
• Severity 4 (Suggestions): Defects with these severities are suggestions given by customer to make the application better. These kind of defect have the least priority and are taken at the end of the project or during maintenance stage of the project.

Severity is the one which states how bad or critical the bug is. It is usually reported by the tester to the developing team. It defines the importance of defect with respective to functional point of view.
Priority is the level which determines which bug needs to be fixed first; whether it is of priority high(first) or can it be resolved(not fixed in this release) or can it wait(low level). It is usually determined by the developing team or the manager. It defines the importance of defect with respective to customer point of view.