Virtualisation is a process of running multiple independent virtual operating systems (servers generally) on a single physical computer. It is a way of maximizing physical resources to maximize the investment in hardware.
So it is now possible to turn a very inexpensive 1U dual-socket dual-core commodity server into eight or even 16 virtual servers that run 16 virtual operating systems. Virtualisation technology is a way of having more actual server. However, it does not actually increase total computing power; it decreases it slightly because of overhead.
However we can exploit this newly found hardware power by increasing the number of logical operating systems it hosts. This slashes the majority of hardware acquisition and maintenance costs that can result in significant savings for any company or organisation.
Virtualization is the perfect solution for applications that are meant for small- to medium-scale usage. Virtualization should not be used for high-performance applications where one or more servers need to be clustered together to meet performance requirements of a single application because the added overhead and complexity would only reduce performance.
We're essentially taking a 12 GHz server (four cores times three GHz) and chopping it up into 8 x 1.5 MHz servers. But if 4 of those servers are in off-peak or idle mode, the remaining 4 servers will have nearly 3 GHz available to them.