Network Virtualization

The term “network virtualization” describes the ability to refer to network resources logically rather than having to refer to specific physical network devices, configurations, or collections of related machines. There are many different levels of network virtualization, ranging from single-machine, network-device virtualization that enables multiple virtual machines to share a single physical-network resource, to enterprise-level concepts such as virtual private networks and enterprise-core and edge-routing techniques for creating subnetworks and segmenting existing networks.

Xen relies on network virtualization through the Linux bridge-utils package to enable your virtual machines to appear to have unique physical addresses (Media Access Control, or MAC, addresses) and unique IP addresses. Other server-virtualization solutions, such as UML, use the Linux virtual Point-to-Point (TUN) and Ethernet (TAP) network devices to provide user-space access to the host’s network. Many advanced network switches and routers use techniques such as Virtual Routing and Forwarding (VRF), VRF-Lite, and Multi-VRF to segregate customer traffic into separately routed network segments and support multiple virtual-routing domains within a single piece of network hardware.
Taken from : William Von Hagen "Professional Xen Virtualization" 2008