I know that shared hosting providers use openVZ to give multiple users accounts on the same machine that look like root, but which can't interfere with the other users too much.
You could use virtual machines for the same thing, but it isn't as efficient. The main advantage is that with VMs you can offer Windows hosting, or hosting on more than one Linux kernel version.
I don't know exactly why Amazon still uses Xen instead of KVM, but I think at least part of it has to do with the fact that Xen came out first.
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