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Virtual Server 2005 is the cost-effective virtual machine solution designed for Windows Server 2003 to increase operational efficiency in software testing and development, server consolidation scenarios, and application re-hosting.

Virtual Server is a package that allows you to run a number of virtual computers on a single host running Windows XP or Windows Server 2003. The package comes in two versions which are identical in every respect except CPU support: the Standard version handles up to four processors, while the Enterprise version can support up to 32.
What's a virtual computer? Basically it's an application that presents the user with what looks like an empty 80x86-based computer, on top of which he/she can install operating systems and applications just as if it were a fresh PC. Control of the computer is provided not by plugging keyboard, mouse and monitor into the PC (it's a lump of software, after all) but by providing an emulation layer between the host PC's peripherals and what the virtual computer thinks are its physical peripheral ports. With VS2005, you can have multiple virtual computers, all running different operating systems and applications.
VS2005 takes only a few minutes to install, and the setup process requires next to no user input. Once it's up and running, management is done via a Web user interface, which can either work natively in HTTP or use an encrypted connection. Because remote control needs more than a bunch of HTML pages in order to work, an ActiveX component is downloaded the first time you connect, in order to provide you with VNC-style remote control.
VS2005 doesn't take over your computer completely – instead, it implements the virtual machines you specify on top of the operating system and drivers you already have installed. The virtual machines themselves are provided with virtual network connections and hard disks by VS2005's emulation layer, which sits between the underlying Windows driver and whatever OS you install on the virtual machine. Virtual disks can be implemented by mapping them either to real disks or to virtual disks that actually exist as files on the host machine's own hard disks, and you can restrict the various system parameters such as the size of each virtual disk and the RAM available.
The speed of the system depends mainly on the host machine it's sitting on and the number/variety of virtual machines you create (and the operating systems you sit on them). Although it'll work with Windows XP, you're most likely to run VS2005 on a meaty-looking server with plenty of RAM and disk and a copy of WS2003. This said, performance isn't bad for an emulated machine – the hard disk virtualisation felt pretty speedy to us, though CD-ROM access speeds seemed pretty lethargic.
Why would you use VS2005? Well, you obviously wouldn't want to run live, time-critical services on it because no matter how fast the emulator is, it's going to be considerably slower than a proper, dedicated PC. Virtual computers are, however, handy if you have a little-used application that would otherwise need a PC of its own. It is also ideal for people like me who develop Windows software and who need to find a way of testing it on a shedload of different operating systems, perhaps with different settings, but who don't want to either (a) buy a shedload of computers; or (b) keep swapping between operating systems on a single PC. Of course, you could have a single PC with a number of operating systems side-by-side, but you’d quickly tire of rebooting again and again – particularly when VS2005 gives you the ability to have several OSs running next to each other on the same machine but in different browser windows!
Virtual Server 2005 is a useful tool for those with the right need – namely to run a number of different variations of operating system, applications and system settings, but preferably not all at the same time. And despite being a Microsoft product, the VM it presents in its virtual machines is a generic one – so you can install Linux (we tried Red Hat 9, which worked with no hassle) or some other non-Windows OS if you so desire.