Priority and Severity in Software Testing

Severity of a bug is based on how much does it impact on the system. Severity refers to the seriousness of the bug with respect to functionality of the product. Is related to technical aspect of the product. It reflects on how bad the bug is for the system.The Quality Assurance (QA) Engineer decides the severity level. It is determined as per the risk assessment of the customer. Severity is defined by Tester.

Severity can be categorized into the following levels
Blocker
Critical
Major
Minor
Trivial (Also known as Cosmetic)
Enhancement (Suggestions)

Priority is based on how fast we should resolve the bug. Should we fix it now, or can it wait? How difficult is it to resolve? How many resources will be tied up by the resolution?
Priority is defined by Test Lead or Project Manager.

Priority can be categorized into the following levels
Urgent
High
Medium
Low

Lets take some example on Severity and Priority:-

high priority and low severity :
If Gmail logo is not correct then its high priority... though there is no functional bug here, any one would try to correct the logo as quick as possible as it represent the business name. So it is taken as high priority and low severity.

Low Priority & High severity :
Suppose one application which generates some banking related reports monthly, quarterly & yearly by doing some calculations. If there is a mistake while calculating yearly statement. This is a high severity fault but low priority because this fault can be fixed in the next release as a change request.

High Priority & High Severity :
Any banking application if there is a fault while calculating weekly report. This is a high severity and high priority fault because this fault will block the functionality of the application immediately within a week. It should be fixed immediately.

Low Priority & Low Severity :
If there is a spell mistake on the pages which has very fewer hits throughout the month on any website. This error can be considered as low severity and low priority.

Note for Experience peoples - most of the testing Guys do while answering the Simple question they took the examples from the Global project LIKE Yahoo, Google, Rediff, etc.
I my opinion this is Bad Habit, Always give the Example from your current or previous projects. It actually leaves a good impression on the Interviewer. You just know the concept of what "Priority" and "Severity" is, Prepare the examples from your current / previous projects.