Lets start by opening the Printers folder in Windows, in this screen-shot you can see icons for each of the printers windows knows about. Lets call these the physical printers, print to any of these devices and you will get a piece of paper magically appearing out of your printer.

Windows uses some software called a printer driver to let you use these physical printers. This might come with Windows or more likely on a CD in the same box as your printer.

So what is a virtual printer? Not long after Windows was launched programmers realised they could write a printer driver that didn't send it's output to an actual device but instead could do something else with your document. Probably the earliest to appear were Fax printers which would send a fax when you print to them, quickly followed by PDF software which would create a PDF file from any application which can print.

Now you can find virtual printer drivers which will create image files, transform your prints, email and archive documents.