Sheathing is usually considered the layer beneath the final siding of a wall. Sheathing materials that are regularly used include plywood and oriented stand board. Normally a vapor barrier such as Tyvek or other house wrap is applied to the sheathing using button cap or roofing nails.
If construction is done quickly, OSB is less expensive but also less durable than plywood. The biggest factor is moisture; OSB does not stay together as well as plywood.
Other materials commonly used for sheathing include foam panels with plywood or OSB at the corners of the building. The foam panels may be made from extruded polystyrene or cellulose.