A physical server is partitioned into smaller virtual servers to help maximize server resources.
Software is used to divide the physical server into the multiple virtual servers. The resources of the physical server are hidden from the users within the server virtualization.
This is commonly used in web-servers. Virtual web-servers are a popular way to provide low-cost web-hosting to users.
One of the benefits to using server virtualization over dedicating one server to a single application or task is that each virtual server within one physical server can run independently and be rebooted from one another.
Also, server virtualization can be very cost effective since there is less hardware required to run the multiple virtual servers.