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http://en.wikipedia.org/wiki/Virtual_machines

The original meaning of virtual machine, sometimes called a hardware virtual machine, is that of a number of discrete identical execution environments on a single computer, each of which runs an operating system. This can allow applications written for one OS to be executed on a machine which runs a different OS, or provide execution “sandboxes” which provide a greater level of isolation between processes than is achieved when running multiple processes on the same instance of an OS.

One use is to provide multiple users the illusion of having an entire computer, one that is their “private” machine, isolated from other users, all on a single physical machine. Another advantage is that booting and restarting a virtual machine can be much faster than with a physical machine, since it may be possible to skip tasks such as hardware initialization.[1]

Such software is now often referred to with the terms virtualization and virtual servers. The host software which provides this capability is often referred to as a virtual machine monitor or hypervisor.

Software virtualization can be done in four major ways:

• Emulation, full system simulation, or “full virtualization with dynamic recompilation” — the virtual machine simulates the complete hardware, allowing an unmodified OS for a completely different CPU to be run.
• Paravirtualization — the virtual machine does not simulate hardware but instead offers a special API that requires OS modifications.
• Native virtualization and “full virtualization” — the virtual machine only partially simulates enough hardware to allow an unmodified OS to be run in isolation, but the guest OS must be designed for the same type of CPU. The term native virtualization is also sometimes used to designate that hardware assistance through Virtualization Technology is used.

Virtualization can make real energy cost savings by allowing one physical machine to host many virtual machines, allowing me to take say 8 physical boxes, and consolidate them on to one server with 8 hypervisors or 8 virtual machines, again, that’s 8 virtual machines on one box, one energy cost. The 8 physical boxes can then be removed and allow you to reclaim the power/cooling associated with them.

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