A VM is just a program run on the host OS (operating system) providing all the functions that the hardware would normally provide to the guest OS. It can also create “virtual hardware”, like a fake disc drive that can load iso files from the filesystem. So if an OS would normally ask for a file to be moved from point A to point B, a guest OS would ask the VM software to move the file, and then the host OS would tell the hardware to perform that task.
The benefits of a VM is that you can (partially) isolate the hardware from the OS and do fun things like running multiple OSes (with multiple VMs) at the same time. You can also use the same source image of a VM to recreate the same virtual server whenever you need it, such as if you need to rapidly scale up your server network or your old server died or got corrupted.
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