The term is used for emphasizing that the virtual machine, although running in software on the same physical computer as other customers' virtual machines, is functionally equivalent to a separate physical computer, is dedicated to the individual customer's needs, has the privacy of a separate physical computer, and can be configured to run as a server computer (i.e. to run server software).
Each virtual server can run its own full-fledged operating system and can be independently rebooted.
The physical server typically runs a hypervisor which is tasked with creating, releasing, and managing the resources of "guest" operating systems, or virtual machines. These guest operating systems are allocated a share of resources of the physical server, typically in a manner in which the guest is not aware of any other physical resources save for those allocated to it by the hypervisor.