It was first introduced in the 1960s to allow partitioning of large mainframe hardware, a scarce and expensive resource.  Over time, minicomputers and PCs provided a more efficient, affordable way to distribute processing power, so by the 1980s virtualization was no longer widely used.

In the 1990s, researchers began to see how virtualization could solve some of the problems associated with the proliferation of less expensive hardware, including underutilization, escalating management costs and vulnerability.

Virtualization allows multiple virtual machines, with heterogeneous operating systems to run in isolation, side-by-side on the same physical machine.  Each virtual machine has its own set of virtual hardware (CPU, RAM, NIC, CDROM, etc...) upon which an operating system and applications are loaded.  The operating system sees consistent, normalized hardware regardless of the actual physical hardware compnents.

Virtual machines are encapsulated into file, making it possible to rapidly save, copy and provision a virtual machine.  Full systems (fully configured applications, operating systems, BIOS and virtual hardware) can be moved within seconds from one physical server to another with zero-downtime.