Virtualization is the process of partitioning servers so that they act as multiple servers, allowing the expansion of IT resources without incurring the costs of physically expanding infrastructure.
So in effect, for example, instead of having one physical machine running one operating system, with server virtualization, you would have one physical machine running multiple copies of an operating system.
The main benefit of virtualization is that it can cut a business' IT costs. For instance, a business with multiple servers could use server virtualization to eliminate x number of those physical servers, freeing up space and cutting down on the energy, maintenance and security costs related to their physical IT plant.
Virtualization is not new. VMWare, one of the leading vendors in the virtualization market, has been around for over ten years, and according to IDC Canada, in January 2008, 63 percent of organizations with over 500 employees and 40 percent of medium-sized organizations (100 - 499 employees) were using server virtualization (up from 48 and 22 per cent, respectively, in early 2007). Other vendors in the virtualization market include Microsoft's Hyper-V.
Virtualization is new to small businesses, however, as the smaller an IT shop, the smaller the physical footprint and the smaller the savings resulting from virtualization would be. Sever virtualization vendors seem to be betting that small businesses will find virtualization worthwhile.