You have a certain CPU + RAM + HDD (3 resources) on a hardware (ignoring other resources for this example). Then there is an Operating System (like Linux / Windows) that is installed onto it. This OS has access to all of machines resources. Within that OS there is a program that allows the administrator to create compartments with specificed fractions of all the 3 resources allotted to each compartment. Then that compartment is called a VM. So VM1 may have 30% of the CPU + 4 GB (out of 16 GB) RAM + 500 GB (out of 4 TB) HDD and VM2 will have the balance.
Compartment 1 does not know what is happening in compartment 2. All these compartments run independant of each other. So even if there is a crash / data corruption in compartment 2 – other compartments are not affected.
This is a very simplistic explanation but its quite complex to allocate other resources and ensuring that all VMs on the machine are running in a balanced way. Optimization of the VMs on a particular hardware – is a totally different ball game by itself.
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