You must have heard about server virtualization is becoming a necessity in the IT industry. But for the uninitiated, this is still a big mystery. So what exactly does virtualization of server means?

Server visualization is useful in instances where services offered by a single server say email or file sharing is either mission critical or dose not use all the resources of a server. By vitalizing mutable servers on one actual server you can cut the number of physical servers needed. Also with critical applications and shared storage a critical service can be moved to another physical box to allow for maintenance on the physical server or in the case of a failure. By using virtual machine images additional servers can be added with a lot less effort. Sent from a virtual machine!

To add to cmeeks response:
Virtual Machines (VMs) allow for lower power consumption and lower cooling needs because multiple VMs can reside on one physical machine. These numbers are easy to correlate directly to ROI.
Technology has advanced in such a way that operating systems are not taking full advantage of the processor and memory capabilities currently available as hardware configuration options. By hosting multiple VMs on a single physical machine, companies are able to better utilize available hardware.
VMs add a considerable level of flexibility concerning storage usage, hardware upgrades and systems changes as the VM can be moved from one physical server to another without any noticeable downtime.