I have a post at my Wind River blog, about the difference between virtual and physical systems. The key idea is this:
Comparing virtual and physical systems is like comparing apples and apples, not apples and oranges: while apples are mostly interchangeable, they is certainly variation between them. Some apples are best for eating, some are better for making sauce, some are pie material, and some are best for fermenting cider. The type you select depends on what you want to cook. The difference between physical and virtual hardware is similar: they can be used as replacements for each other to some extent, but the connoisseur can make much better use of both by looking at the differences.
Go there now and read i!