FUSE stands for Filesystem in Userspace. As the name implies, it allows a user with limited privileges to create a functional filesystem without requiring root (administrative) privileges. Because the filesystems exist in userspace, they are technically virtual filesystems. They, nevertheless, function as though they are not. Does FUSE have any use on a server? In some cases, yes.
One example of a practical use for FUSE is for mounting network file systems. SSHFS, for example, is a remote file system that is accessible via SSH. If you have a folder on your server that you would like to function as a normal folder on your local machine, SSHFS allows you to accomplish that. In this case, FUSE would be necessary on the local machine.
FUSE might also be necessary on a server, if you are mounting filesystems from other servers, such as a backup server. You can temporarily mount them using SSHFS, NFS or any other method you choose. In all cases, FUSE makes it convenient to mount without needing to make changes to fstab. When you are done with your mounts, you can detach them and not have to worry about them anymore. You can find out more about FUSE at linux.org.