Every few weeks, a new article comes out basically saying "ZOMG! Self-publishing is so much greater than anything else!" The author of said article almost always makes some valid points, and yet almost always misses a whole bunch of other issues.

tl;dr -- Self-publishing is only cheap and easy when you do it poorly. To be successful at it is time-consuming, confusing, and expensive. Many authors are better off with a traditional publisher.

But let me back up and tell you a bit about my experience in the publishing game. I've done it both ways.

I've been self-published (with Cracking the Coding Interview) and I'm very proud to say that my book is Amazon's best-selling interview book and Amazon's #622 (on average) book over all categories.
I've also been traditionally published (with The Google Resume) by Wiley. I think Wiley is great. Really. (For those who aren't familiar with publishers, Wiley is probably the biggest name publisher for my genre of books.)

In fact, I've actually been more successful self-publishing than traditional publishing. So I should be the first one to jump up and down and tell you that self-publishing is the best thing ever. But I can't. Because the dirty truth is: it's not that simple.

Self-Publishing != E-Book Publishing

Let's get this out of the way first. Self-publishing and e-book publishing are not the same thing. Confusing them is like confusing Chinese food with take-out. Yes, Chinese food is often available for take-out. But so is a lot of food. And there are plenty of Chinese restaurants that don't offer take-out. So, please, let's separate these two.

Many self-published authors only do e-books. But you can also self-publish on paperback. In fact, you can exclusively self-publish on paperback -- I do. And, obviously, many or most traditionally published books are also available as e-books. Let's keep these things separate, k?

Self-Publishing is Hard [To Do Right]

People love to say, "oh, yeah, it's a breeze! Just upload your book to CreateSpace (or whatever self-publishing service) and bam!" I have yet to hear a successful self-published author say that that's all they had to do.

It's easy to do a crappy job at self-publishing, but it's not so easy to do a good job.

You need to hire your own editor.
You need to hire your own cover designer.
You need to hire a layout person.
You (probably) won't get into Barnes and Noble -- even if you're doing extremely well. It turns out that getting placed in Barnes and Noble requires you to do a whole bunch of secret things. Guess what? A traditional publisher knows what those things are. Do you?
You probably won't be able to publish in Canada via Amazon. It may be listed there, but it may not be in stock.
You probably won't be able to get great media spots. Maybe, if you're pretty famous before writing, you'll be able to land these. But otherwise... good luck. Wiley, however, was able to get me on Forbes, CNBC, USA Today, and others.
You'll have trouble getting your book translated to other languages. You might, if you're lucky / successful, get contacted by some foreign publishers who want your book. But will you know what a good rights contract is with them? Will you know if they're even ethical and if they'll pay you per the contract? (This happened to a self-published author I know. His Chinese publisher just stopped paying him. And he can't do anything about it.) Your traditional publisher knows the foreign publishers, and they know who to trust.
There is just so, so much you won't know about. I had been successfully self-publishing for over a year before traditionally publishing and I'm very tech-savvy and this was my full-time gig, and I still learned a ton from my publisher. (Thanks Wiley!)

If you're self-publishing, you need to be willing to bear the cost of this, have the know-how to actually do this stuff, and have the time to do so. Not many people have that. Now, go with a traditional publisher, and they'll take care of all this time, hassle, and expense for you.

Self-Publishing is Not [Really] Better Financially

See those things above? Shockingly, those cost money.

So here's how the math works out:

Traditional Publisher:

You'll (probably) get an advance - let's figure about $10,000. This is against your [future] royalties. It is not a bonus, so don't get all excited about this. Effectively what it does is set a lower-bound for how much money you'll make. That's all.
You'll get a royalty on each sale of maybe around 7 or 8% on the retail price. Again, this is after you've earned your advance. So for a $15 book, you'll make about $1 per book.
You won't pay anything out of pocket.

Self-Publishing:

You'll pay a bunch of out-of-pocket. In my case, this was close to $2000 -- but I did a lot of this work myself (which is only possible because I'm very tech-savvy). - cover design: $700 (with more tweaks myself) - paperback layout: $200 (much of which I did myself) - editing: $300. - kindle layout: $600 (my book is technical though, so it's more expensive to layout). I've heard numbers of around $300 for other people.
You'll probably use a print-on-demand service like CreateSpace, so there's no up-front costs.
Paperback royalties: 60% of list price, minus the cost of printing. A standard 300 page 6x9 book costs about $4.50 to print. So you'll make about $4.50 from a $15 book ($4.
Kindle royalties: 70% if your book is $9.99 or less (30% if it's more), minus the cost of delivery. So you'll make a little under $7 per book.

Conclusions [based on the above assumptions, and assuming that you sell the same number of books either way... which is obviously a somewhat silly assumption]:

You need about 500 books to make back the investment self-publishing. Most self-published authors don't even do that.
You need to sell more than 2500 books to do better self-publishing than traditionally publishing. Very few self-published authors do this.
And this is all assuming your time is free. If you assume that your time is worth something, you might need to make many more sales to make self-publishing worth it.

Essentially, to say that self-publishing is better than traditional publishing is like saying that launching a start-up is better [financially] than working for a big company. Yes, the big rewards may be in one -- but so is the big risk. (In fact, the parallels are even deeper -- self-published authors areentrepreneurs.)

What I will say is that if you want to make a living writing, it's incredibly difficult to do that by going through a mainstream publisher. In many ways, your only chance of making a good living from writing is self-publishing. But it's still not a great chance.

So What is Right for You?

I get this question a lot, and there's no good answer. Here's the questions I'd take you through though:

Are you trying to earn a living off this? It's virtually impossible to do that with a traditional publisher. It's at least feasible to do this via self-publishing. But the odds are tiny either way.
Are you willing to invest your time and money into this? Your publisher takes care of a lot when you go through a big publishing house. If you're going to do it on your own, be prepared to be putting a lot of time and money into this. That is, if you want to do it well.
Are you looking for anything else (credibility, speaking engagements, etc)? You'll probably sell more copies with a traditional publisher -- they can get you into physical stores, get you media spots, get your book sold in other languages, etc. If you're looking for credibility, speaking engagements, or just high sales (by quantity, not dollars), you might be better of with a traditional publisher.

Like anything else, you need to know what you want to get out it -- and what you're willing to put into it -- to make the right decision. Self-publishing is not this amazing one-size-fits-all solution.