A server is a dedicated computer set up to do specific functions for a group of workstations. The server may have a single function or many functions with in the network
A virtual server is when you use software to create a "virtual machine" and use it as the new server, rather than putting another box on the rack. To the network, a VM looks just like a real machine. But there is no hardware, so it's a lot less expensive to deploy a VM.
An example would be where you have a powerful but underutilized computer already running on he system. This box cost your company several thousand dollars, but most the time it is just sitting there doing nothing. Let's say this box runs Linux software as it's OS.
Now the accounting department wants to set up a network based installation of QuickBooks.
The problem is that that program runs on Windows, and all your Windows servers are full. There is no budget to buy a new server.
You solve this by installing Virtual Machine software like VMWare and creating a Virtual Machine on the Linux Server.
Now you load a Windows OS on the VM and install your Quickbooks there. To accounting, it looks like you put a new box on the rack. Actually, it is just software, running in the old server.
Now take this example one step further. You lease space on the cloud from someone like Amazon. You set up your base OS, so now you have a computer running on the clould. But unlike a real piece of hardware, this computer can expand and contract at will. You can add processors and memory with a couple of mouse clicks, or downsize it just as fast.
You create your virtual machines in this "master computer" and connect them to your network using VPNs (Virtual Private Networks)
Now the server room is somewhere else, maybe in another country. There is no hardware in your office.
So now you have the ability to add or remove servers at will, tailoring your capacity to the workload, only paying for the computing power you need, and saving all that hardware investment.
Hope that helps