They reserve part of your hardware and it runs a second OS on that. Running a VM will take away resources from your applications running on the main OS.
VMS will allocate the resources, even if they are not needed. Therefor a VM should be configured with minimal resources, especially when running on your personal machine.
When running a VM in the cloud there is usually multiple machines that form 1 big machine, which is called the hypervisor. That big machine is then broken down in multiple VMs. These are the ones offered by AWS, GCP or Azure. (Or any other cloud provider)
So a cloud VM is run on multiple hard metal machines, when you would shoot one of those hard metal machines with a shotgun, the VM would continue to be online, as the hypervisor continues to live on. When you keep shooting, the hypervisor will eventually die, taking your VM with it.
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