What Are Virtual Machines?
Hardware, server, or platform virtualization is the technology of running a virtual operating system inside of another operating system. Basically, you now have two computers going. (If you don't already know, operating systems are what "run" your computer. Without them, you couldn't do much. OSes help you execute and use programs you want. If you don't know what an operating system is, you are probably running some version of Windows.)
Things on a virtual machine have almost no way to access your real computer, unless you configure it too. So, if a virus infects your virtual computer and now it shows pop-ups every 5 seconds, you can just "delete" it and make a new one.
This creates quite a few possibilities. Some are mentioned above, but here is another one (after all, examples can help you realize when something is the best). You see this great-looking, free program. The thing is, you aren't sure if it is trustworthy, and/or if it will fit your needs. Pull up your virtual machine, and try this program just like you would on a "real" computer. With some virtual machine hosters, you can restore your machine to another state you had been in at a previous time. This allows you to quickly delete or go back to another state if you dislike whatever you tried.