A Physical server refers to a hardware server with the motherboard, CPU, memory and IO-controllers. It's considered a bare-metal server because its hardware is used directly by an OS instead of a virtualization platform. Physical requires purchasing of additional resources for swapping out disk to prevent poor performance, costs can become over whelming.
A Virtual server or Virtual machine -- terms used interchangeably here -- is a software-based representation of a physical server. The function that abstracts CPU, memory, storage and network resources from the underlying hardware and assigns them to VMs is called a hypervisor.
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