It is customary to add an extra candle – called the "Shamosh" – alongside the obligatory Hanukah candles. The reason for this custom is that one is forbidden to derive personal benefit from the Hanukah candles, and thus by adding the Shamosh, we ensure that if one happens to derive benefit from the candles, it may be said that he is deriving benefit from the Shamosh, and not from the actual Hanukah candles.
The Shamosh does not have to be the same kind of candle as the actual Hanukah candles. Although it is proper to ensure that all the Hanukah candles are uniform – meaning, to use all wax candles or all oil lamps, rather than using some wax candles and some oil lamps – the Shamosh may be different from the actual candles. Thus, for example, one may use a wax candle for the Shamosh even though the actual candles are lit with oil. In fact, it may even be preferable to use a different kind of candle for the Shamosh, in order to make a clear distinction between the Shamosh and the actual candles. One is not required to use a different candle for the Shamosh, but it is certainly permissible to do so and might even be preferable. This is the ruling of Hacham Bension Abba Shaul (Israel, 1923-1998).
The custom among Sepharadim is not to use the Shamosh to light the actual candles. A separate candle should be used for the lighting.
In the "Ha’nerot Halalu" prayer recited after the Hanukah candle lighting, we describe the Hanukah candles as "sacred" – "Ha’nerot Halalu Kodesh Hem." This text is based upon Masechet Sofrim (20:6). The question arises as to how to reconcile this text with the Gemara’s explicit comment in Masechet Shabbat (22), "Ve’chi Ner Kedusha Yesh Bah" – "Does the candle have sanctity?" The Gemara there discusses the prohibition against deriving benefit from the Hanukah candles, and dismisses out of hand the possibility that the candles are forbidden for use because they have Halachic "sanctity." How can we describe the candles as "Kodesh" if the Gemara explicitly dismisses the notion of the candles being "sacred"?
Hacham Bension Abba Shaul, in his Or Le’sion (vol. 4, p. 269; listen to audio recording for precise citation), explains that the term "Kodesh" used in reference to the Hanukah candles is a borrowed terminology. Clearly, as the Gemara states, the Hanukah candles do not have Halachic sanctity like the candles in the Bet Ha’mikdash. We speak of them as "Kodesh" in the sense that they are special and forbidden for personal use, but not in the formal, Halachic sense like the candles in the Temple.
Summary: The Shamosh may be a different kind of candle than the actual Hanukah candles; for example, if one uses oil lamps for the Hanukah lights, he may use a wax candle as the Shamosh. In fact, this might even preferable. Sephardic custom is not to light the Hanukah candles with the Shamosh.