Basically you can emulate an operating system (quest OS) within the host operating system using specific Virtual Machine engines like VMWare. Using the VM you can allocate parts of the physical hardware to the guest OS. Depending on host system specs you can run many guest OSes...like have single server and few dozens/hundreds client systems (monitor, mouse/keyboard). or test software on various OSes on a single system and monitor it's performance/stability in real time.