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The key technology that makes VPS hosting work is virtualization. Your account is isolated onto its own virtual machine that, though it sits on a server with hundreds of other sites, functions within the boundaries of its own virtual environment. Thus, your VPS server is functionally equivalent to a privately leased dedicated server, save for a few minute differences.
VPS Hosting Virtualization
All the resources assigned to your VPS hosting account are for your use only. For example, if you sign up for a virtual machine with a 1.13 GHz processor, 768 MB of RAM, 30 GB of disk space and 500 GB of bandwidth, these four resources become a permanent staple of your server that cannot be taken away from you unless, of course, you fail to renew your lease.
While you own the resources, you have no ownership over the actual hardware. The server containing your VPS account may in fact house four 3.2 GHz processors, 8 GB of RAM, a 2 TB hard drive and TB upon TB of bandwidth, but it is the task of a virtual machine manager (VMM) or hypervisor to intelligently allocate portions of these components resources to multiple VPS machines.
The hypervisor or VMM separates your VPS server from all other servers on the server. It essentially makes your account panel think its on a unique, physical server, when it is in fact in a virtual environment. Accomplishing this feat requires that the VMM map and translate all requests between your VPS machine and the actual physical server. This is only possible with a virtualization-compliant CPU.
Because your VPS server functions as its own physical device, you may treat it as one. This means you can access the virtual servers core directory and make those adjustments you deem appropriate, i.e., delete unwanted system applications, install custom programs and upgrade the kernel. Such options are not available with shared web hosting, wherein you share a server but without the isolation of a virtual environment.