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A virtual machine is a software-based emulation of a physical computer that runs an operating system and applications as if they were running on a physical machine. It allows multiple operating systems to run on a single physical machine, making it a cost-effective and efficient way to utilize hardware resources. Virtual machines are commonly used for testing software compatibility, running multiple operating systems on a single machine, and isolating applications for security purposes. They are also used in cloud computing environments to provide scalable and flexible computing resources.