Server virtualization is the key aspect of virtualization technology, where the main server is virtualised to create a guest system that exactly works as a main system. A software layer called hypervisor makes this happen by emulating underlying hardware. Here the guest operating system uses the software emulation of the underlying hardware, i.e., virtualized hardware and not the true hardware.
The performance of the virtual system is not exactly the same as that of the true system. Even then the virtualization holds significance as the most applications and guest systems may not demand for full utilization of the underlying hardware.