http://www.vmware.com
Basically it is software that emulates another computer. The emulation is very autonomous from the computer you're running it on with the exception that it will be dependant on your resources of course. It's more like a parasite. I use it at work to test configurations of different OSes and security and such.
At the moment I am running Windows XP as my desktop OS with two instances of VMware up running Redhat AS 3.0 and Windows XP Pro. They both have their own IP addresses and they both can communicate out to the rest of the world as if they were in fact real.