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A virtual Machine is a software computer that, like a physical computer, runs an operating system and applications. It has its own set of virtual hardware on which a guest operating system and its applications run. The operating system sees a consistent set of hardware regardless of the actual physical hardware components.
Virtual machines are not emulators or simulators. They are real machines that do the same thing physical computers can do and more. Because of the flexibility of virtual machines physical computers become less a way to provide services (applications, databases, and so on) and more a way to house the virtual machines that provide those services.