The concept of a virtual machine (VM) is explained as a software-based simulation of hardware, allowing multiple operating systems to run simultaneously on the same physical machine. This technology enables various benefits such as the ability to run different OS environments concurrently, emulate older or unsupported platforms, and facilitate migration between physical machines. While VMs provide several advantages, they also have limitations, including reduced performance due to resource utilization, potential for poor execution if not properly managed, and limited compatibility with certain applications that require hardware-specific capabilities.