Virtualization is a combination of software and hardware engineering that creates Virtual Machines (VMs) - an abstraction of the computer hardware that allows a single machine to act as if it where many machines.
Virtualization was first used by IBM® in the sixties on mainframes, though it only became practical to use with PCs about ten years ago. Its use has exploded since that time and now it's a proven, stable technology with many vendors and options.
Software testing and development are often the first departments to adopt virtualization because they know they can use virtualization software to create and test a wide variety of scenarios in safe, contained environments that accurately emulate the operation of physical servers and client PCs.
Without VMs: A single OS owns all hardware resources
With VMs: multiple OSes, each running its own virtual machine, share hardware resources
Virtualization enables multiple operating systems to run on the same physical platform.