Virtualisation is a very simple concept: You run a virtual hosting platform on a physical machine and then on that platform you create virtual computers (virtual machines). These virtual computers act like real computers and can run anything you usually run on a normal computer (e.g. operating systems).

The virtual hosting platform then lets you network these virtual computers together and also lets them access the real network attached to the virtual host. In this way you can build a whole server farm (several functionally related machines often behind a firewall) on one physical machine. Examples of this are a DMZ or a data centre.

The flexibility of such systems are huge. For example if one of the virtual machines, for some reason, needs physical relocating (needs a more powerful machine or needs to be moved to a different physical location etc.): Simply bring down the virtual machine; copy it onto the new virtual host platform in the now location/hardware and start it back up. The virtual computer has no idea anything has changed apart from it has been rebooted.

Separating functions onto separate virtual computers and having several virtual computers running on one shared hardware system results in a more logical and stable, architecture. It also results in big savings in hardware costs.