For us web developers it's advantageous to have a completely functional local setup of the site we are working on. It means we can continue to work (at least to some degree) when the Internet goes down. It means we can work on the train. It means we don't need to wait around for our Systems Administrators to add an extension or new feature to the server.
When I'm concentrating on a particularly difficult problem, I like to pick up my laptop and go and sit in an unused meeting room where I can properly concentrate on the issue at hand - unplugged from the network - without distractions from colleagues, Facebook, Twitter or whatever the latest online fad is.
But having a development environment on your box is not without it's flaws. Windows users often end up developing on something which is completely different from their production environment. Mac OS X and Linux users have to basically learn system administration and install their environment with MacPorts. Not a bad skill to learn but often not all members of the team are capable of doing this without losing many man hours. It would be much better if one of your more senior developers could do this once for everyone.
This is where virtualization comes in. Virtualization is essentially running another Operating System like an application on your Operating System. Sounds like an overkill doesn't it? Well the benefits are pretty stark:
You can even continue to use your favourite text editor. Just setup a share between the host and guest machine. There are quite a few software options to run your virtual machine, but I'd recommend VMware. It does a sterling job. A free alternative from Sun is VirtualBox.