Server Virtualization is most important part of Cloud Computing. So, Talking about Cloud Computing, it is composed of two words, cloud and computing. Cloud means Internet and computing means to solve problems with help of computers. Computing is related to CPU & RAM in digital world.
Now Consider situation, You are using Mac OS on your machine but particular application for your project can be operated only on Windows. You can either buy new machine running windows or create virtual environment in which windows can be installed and used. Second option is better because of less cost and easy implementation. This scenario is called Virtualization.
In it, virtual CPU, RAM, NIC and other resources are provided to OS which it needed to run. This resources is virtually provided and controlled by an application called Hypervisor. The new OS running on virtual hardware resources is collectively called Virtual Machine (VM).
Now migrate this concept to data centers where lot of servers (machines with fast CPU, large RAM and enormous storage) are available. Enterprise owning data centre provide resources requested by customers as per their need. Data centre have all resources and on user request, particular amount of CPU, RAM, NIC and storage with preferred OS is provided to users. This concept of virtualization in which services are requested and provided over Internet is called Server Virtualization.
To implement Server Virtualization, hypervisor is installed on server which manages and allocates host hardware requirements to each virtual machine. This hypervisor sits over server hardware and regulates resources of each VM. A user can increase or decrease resources or can delete entire VM as per his/her need. This servers with VM created on them is called server virtualization and concept of controlling this VM by users through internet is called Cloud Computing.