In many cases, virtualization is used to create Virtual Private Servers (VPS), which essentially make small duplicates of the same operating system within directories that appear to the user as servers within themselves.
A VPS, however, is not the only use for virtualization. In some cases, you may actually want to run a completely different operating system (i.e. running an instant of Linux within Windows). This is entirely possible and is becoming a popular choice for companies that want to save money and be more energy efficient by using fewer physical servers.
There are a number of commercial virtualization options, such as Vmware and Microsoft’s Hyper-V, and there are also a number of free and open source solutions, such as Xen, KVM, Virtualbox, and OpenVZ. The one you ultimately choose will depend largely on your needs, the host operating system you are using, and the guest operating systems you want to support.
In virtualization, the host operating system is the primary one installed on your server. You then install the virtualization software within that operating system. Finally, you must install the guest operating system within a virtual machine. Unlike emulation, virtualization software does not usually emulate hardware. In fact, in some cases, it directly interfaces with the server’s hardware, giving you real-time performance (essentially like running the two operating systems side-by-side, rather than one on top of the other).
With this setup, it is possible to run two distinct operating systems with different web server software, different scripting languages, and different web applications, all within the same physical box.