Virtualization Technology

I'll try to give a simple answer for lay people:

Computers have become so powerful that they can simulate in code an actual hardware device. Since all a computer does is to move bunches of 1 and 0's from place to place and manipulate them, it does not "know" that a virtual machine is not really a physical device, but rather a simulation (or to be more precise- an emulation) of that device.

Now that we have such virtual computers running, if we have enough memory and disk space, we can run multiple "machines" on the same single base hardware. That enables you to run an MS Windows "Computer" inside a Mac, to run a JAVA applet inside a "Virtual Machine" and also allows service providers to offer a "Virtual Private Server" (VPS) - meaning your own private server that you can do what you like with, next to additional VPS machines inside a single physical machine. This makes it cheaper for all side- since the ISP does not need to reserve that machine only for you, allowing them to spread the costs across a number of clients- all of whom get a "private" machine but pay a fraction of what they would otherwise.
 
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