There are several ways to implement virtualization. Two leading approaches are full virtualization and para-virtualization.
Full virtualization is designed to provide total abstraction of the underlying physical system and creates a complete virtual system in which the guest operating systems can execute. No modification is required in the guest OS or application; the guest OS or application is not aware of the virtualized environment so they have the capability to execute on the VM just as they would on a physical system. This approach can be advantageous because it enables complete decoupling of the software from the hardware. As a result, full virtualization can streamline the migration of applications and workloads between different physical systems. Full virtualization also helps provide complete isolation of different applications, which helps make this approach highly secure. Microsoft® Virtual Server and VMware® ESX Server™ software are examples of full virtualization.
Para-virtualization presents each VM with an abstraction of the hardware that is similar but not identical to the underlying physical hardware. Para-virtualization techniques require modifications to the guest operating systems that are running on the VMs. As a result, the guest operating systems are aware that they are executing on a VM—allowing for near-native performance. Para-virtualization methods are still being developed and thus have limitations, including several insecurities such as the guest OS cache data, unauthenticated connections, and so forth. Xen is an open source virtualization software based on paravirtualization technology.
Xen 3.0 Aerchitecture: The Intel x86 architecture provides four levels of privilege modes. These modes, or rings, are numbered 0 to 3, with 0 being the most privileged. In a non-virtualized system, the OS executes at ring 0 and the applications at ring 3. Rings 1 and 2 are typically not used. In Xen para-virtualization, the VMM executes at ring 0, the guest OS at ring 1, and the applications at ring 3. This approach helps to ensure that the VMM possesses the highest privilege, while the guest OS executes in a higher privileged mode than the applications and is isolated from the applications. Privileged instructions issued by the guest OS are verified and executed by the VMM.
ref:
vmware paravirtualization - http://www.vmware.com/files/pdf/VMware_paravirtualization.pdf
Xen Para virtualization - http://www.dell.com/downloads/global/power/ps3q05-20050191-Abels.pdf
Para virtualization with ESX - http://www.virtuallifestyle.nl/2008/10/paravirtualization-with-esx/
Compare Vmware Esx, Microsoft Hyper-V & Citrix Xen - http://www.vmware.com/technical-resources/advantages/robust-foundation.html
Misc -
