Virtualization on a management layer or "HOSTED" which basically means that virtualization software (ie: vmware server, ms virtual server, vmware workstation, ms virtual PC) is installed on top of a host operating system (ie: Windows XP, Vista, Windows 2003, etc etc). The virtualization software (host) thus have an indirect relationship with the hardware resources. On top of that you can now run guest operating system that are running inside the virtualization software. This approach their is an overhead which means that eats up more resources in your hardware due to the host operating system running in parallel with your virtualization software.
Dedicated Virtualization is the second approach which means that the host operating system is bypassed and the virtualization software becomes the core operating system. This allow the virtualization software to have direct access to the physical resources such us CPU, RAM, Disk, and LAN thus reducing performance overhead. This approach is mostly deployed in an enterprise environment using virtualization software packages such as VMWare ESX, Microsoft Hyper-V, and Citrix Xenserver. I will also use this approach moving forward.
I'm not going to talk more in detail about the various scenarios of virtualization but I will mention them for reference. Sever consolidation (p2v), Storage, Network, Applications (VMware ThinApp, Xen App, MS softgrid or AppV), and Desktop (VMware VDM/View, Citrix/Xen Desktop).
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