Virtual Private Servers (VPS) are virtual machines running on physical servers, using virtualisation software such as Virtuozzo, VMWare and Xen ISP's are able to run many virtual PC's within one physical PC server.

Advantages

A VPS is a reasonable alternative to running a physical server as it give can all the system access to the operating system that a real machine gives but with less cost and the possibility of easy backup and recovery. This means you can run customised software and non standard applications on a VPS, something which is not possible on shared hosting.

Disadvantages

However a VPS often has less memory and disk space available to it because it is sharing the real server with other VPS' and may be prone to adverse load conditions if other VPS' on the same server are overloaded. A VPS will also require a certain amount of maintenance and management to be performed by the customer unless extra (patching, security) services are purchased.

Summary

Choose you ISP carefully when selecting a VPS and ensure it's (the VPS) specs match your applications requirements. This will ensure your virtual server has sufficient resources (RAM, disk space and bandwidth) for the job it's going to perform.

Carefully chosen, a VPS is a good solution to a requirement that shared hosting can't meet.