A hypervisor is the software layer that creates and runs virtual machines. Hypervisors are commonly divided into two types based on where they sit relative to the operating system. A VMware blog post sums up the difference: a “Type 1 ‘bare-metal’ hypervisor” is one that “sits underneath the operating system on the bare metal of the server hardware itself,” while a Type 2 hypervisor “runs on top of a ‘host’ OS such as Windows or Linux.”
The same post gives concrete examples. It states that “ESX Server is a Type 1 hypervisor, as is Xen,” meaning these run directly on the hardware with no general-purpose operating system beneath them. Microsoft’s Hyper-V is another bare-metal example. Type 1 designs are common on servers because removing the host operating system reduces overhead and the attack surface.
Type 2 hypervisors instead run as an ordinary program on a host operating system. The VMware post notes that “VMware Workstation and VMware Server” sit “on top of a host OS”; Oracle’s VirtualBox is another example. This makes them convenient for desktops and laptops, where a user wants to run an extra operating system inside the one they already use, at some cost in performance.
The idea predates these products. The 1997 Disco paper described a “virtual machine monitor,” a thin software layer between the hardware and multiple virtual machines, that ran several commodity operating systems at once. Whether that layer runs on bare metal or on a host operating system is exactly what the Type 1 and Type 2 labels capture.