A denomination is a subset of a religion. So for example, Judaism, Islam and Christianity are religions. Within those you have the various denominations - Shiite or Sunni for Islam, Lutheran or Baptist for Christianity, as examples.
As to why, the answer is man and Satan. Look at us just within this small forum. We debate whether or not we go directly to heaven when we die, or whether we need to ask for forgiveness more than once. Imagine all of humanity over all of history agreeing on these things. Thus, you have the various denominations.