Yes, that's exactly it, just like I run several OSes on my machine at exactly the same time. From a perspective somewhere else on my network it would appear there are several different machines running when in fact it's just one physical machine with several virtual machines running several different OSes. This has actually been happening for quite some time but on the home computer level it has only been around 4 or 5 years.
I was in disbelief until I installed my first copy of VMware. I have had as many as 6 virtual machines running at one time on my desktop system. I had 2 different Solaris x86 installations, 2 different Linux distros, Win98 and Win2k advanced server all running at the same time, all accessible on the network as if they were all installed on a separate computer.
As far as the OS knows, they *are* all installed on a separate computer, it's just that it's virtual hardware instead of physical hardware, but they don't know that. You can get a 30 day trial license and download VMware if you are interested in trying it out. I would suggest that you have at least 512MB of RAM for good results though.
There is also a way that you can currently run multiple Linux instances at the same time using something called "User Mode Linux". I actually like this as well for testing things. I have a debian installation in User Mode Linux that I will fire up from time to time. This is a little harder to set up but it does work very well. It's all free and open and you can find it here:
http://user-mode-linux.sourceforge.net/
Then of course there is another open source project that slightly resembles VMware that can run Win* but I don't believe it will ever be good enough unless they do a complete redesign. I hope I am proved wrong on this but it's called Bochs:
http://bochs.sourceforge.net/
Bochs is a lot slower because it actually emulates the processor, which means it could be portable across platforms. With VMware the processor is not emulated and all OSs have access to the real processor so they run at near full speed as if they were the only OS on the machine (as long as the other OS isn't using a lot of CPU).
That last LVM tip I created was done in a VMware virtual machine running FC3. I had a couple of screenshots in there. In fact I have some more VMware shots in other tips showing SUSE, win98, and Win2k server running in a VMware session:
http://voidmain.is-a-geek.net/i/ts-vmware.png
http://voidmain.is-a-geek.net/i/ts-vmware2.png
FC3 boot:
http://voidmain.is-a-geek.net/i/rescue1.jpg
FC3 rescue:
http://voidmain.is-a-geek.net/i/rescue2.jpg