Virtual Dedicated Servers (also known as Virtual Private Servers, or VDS/VPS) are a new product which was introduced into the hosting market to make up for deficiencies in Shared Hosting and Dedicated Servers. Previously, a site developer had two hosting options, the lower-priced shared hosting model and the premium-priced dedicated server. A person who purchased space on a shared host would receive an allotment of disk space and monthly transfer, and would have their site served (along with many others) from a common web server. While hosts would attempt to provide a wide range of capabilities and options in order to increase to popularity of their products, a customer who needed a non-standard program installed or who required the use of a privileged account in order for a particular utility to run would be unable to achieve their goals. One example might be a site which required a database to store information. Many hosts would provide the MySQL database for use on their servers. If your application required another database, then it wouldn't work with the average shared hosting account.
Another drawback of the shared hosting model is that all sites hosted on a particular machine would share a network connection, memory and disk storage. If one site on the server demanded an excessive amount of any of these resources, then all others hosted on that machine would suffer. There was no mechanism in place to ensure that all sites would continue to function under heavy load.
Users who didn't fit into the shared hosting model, or whose sites grew very popular and required a large amount of resources had one alternative: hosting their sites on a dedicated server. A dedicated server could be customized to exactly fit the needs of a site developer. If a particular database were needed, it could be installed without worry, as there were no other users to please. If a CGI script required a higher-than-normal privilege in order to run correctly, that could be arranged.
While dedicated servers could be customized and would cope with much more traffic than a shared hosting account could provide, their enhanced performance came with a high price tag. A typical dedicated server could cost hundreds of dollars per month depending on its size, network connectivity and the amount of management required from the hosting provider. This meant that large-scale corporate websites with a big budget would often end up on dedicated servers, but smaller sites had no place to go.
With the introduction of the Virtual Server, lower budget, smaller sites could now enjoy the freedom of configuration that once was only possible on a more expensive dedicated server