With the different types of alcohol mentioned comes different uses too.
Most every type of alcohol is great for cleaning but not all alcohols are good for everything.
As Chris mentioned, the biggest difference between Isopropyl alcohol and Denatured alcohol is the water content. Now as far as woodworking goes, shellac flakes are dissolved in alcohol and can't have much (preferably no) water in it or it won't lay down, cure or harden correctly. Shellac is one of the oldest finishes used and the outcome or uses for it are so good, that it can be and should be considered for most wood working projects. One of the nice things with shellac is that it's a non toxic finish and once cured (alcohol flashed off) can be consumed (ever wonder what is coating your fruit and veggies to make them nice and shiny or that coating on your morning vitamins that help them slide down easier?)
Ok, off the Shellac bandwagon, back to the alcohol
Anyone remember moonshine, grandma's special medicine or the southern boys hooch? That was ethanol. Strong stuff right? The main reason pure ethanol became regulated and denatured was during prohibition in order to allow for other uses (medical etc...) for the alcohol. Denaturing as Chris mentioned renders the alcohol toxic which generally would keep people from consuming it. The tax reason to my understanding came after prohibition.
In Canada, Methyl Hydrate is the same thing as denatured alcohol in the US and is known by many brand names, everclear is one.
So, if you're going to give shellac flakes a try, you'll need some denatured alcohol to dissolve those flakes (it's a ratio dependent on the solid content of the finish you want). For some good reading on shellac take a look at
Shellac.net