I get asked occasionally what a virtual machine is. This is usually when I'm proposing using them in a business. The concept is actually very easy: we're running multiple computers inside one physical computer.
Special software (called a hypervisor) creates a generic "environment" within the computer that allows the computer to run more than one operating system at the same time. The most common use of this is to run several virtual servers inside a single physical computer.
Why do we like this for even small businesses? Well, there are lots of reasons:
A virtual machine can be moved to a different physical computer with no reconfiguration (such as if you have a computer fail).
If you need, 5 servers for example, you can buy one big computer to run them all for less cost than buying 5 cheaper servers to run individually. By "big" I mean redundant, fast, lots of disks, lots of memory, etc.
Tasks can be separated easier: one server for files, another for email, another for printers, another for ... whatever you want. If you try to do this with physical servers, you have to buy hardware for each.
Management is easier. We assign a server some drive space, some ram, a processor (or several) and start it up. If it needs more of something, we simply assign more or assign it a higher priority with what it already has.
We can even convert a physical server to be a virtual server. This makes it so we can replace several old physical servers with a single new computer and still have the same "servers" running on the network. Nothing has to change from the users' perspective.
Overall it takes less time, costs less, is more manageable, and we can use better hardware.
If you're looking to upgrade your servers you should absolutly consider virtual servers.
Lastly, note that I didn't mention "cloud". That's because "virtual" doesn't mean "cloud".