Server virtualization is a technique where one can take a single piece of existing hardware (computer) and make several independent unique operating systems. This not only saves money from having to buy separate servers for different functions (a best practice) but also reduces the amount of power and cooling costs associated with maintaing these servers. Additonally, it is rare that a single server utilizes 100% of its capacity all of the time. Virtualization allows you to run more for less.
Arguably the best way to deploy a virtual server is on Linux an operating system that is very powerful and in most cases is also without license costs. My preferred Linux distribution is Fedora 9 the latest version available freely to the public.