Hardware emulation is the use of one hardware device to mimic the function of another hardware device.
A hardware emulator is designed to simulate the workings of an entirely different hardware platform than the one it runs on. Hardware emulation is generally used to debug and verify a system under design.
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An administrator must use hardware emulation if he needs to run an unsupported operating system (OS) within a virtual machine (VM). In such a scenario, the virtual machine does not have direct access to server hardware. Instead, an emulation layer directs traffic between physical and virtual hardware. This is less efficient than paravirtualization, which allows for an interface to the virtual machine that can differ somewhat from that of the underlying hardware.
Microsoft's Hyper-V includes hardware emulation because the Integration Services can only be installed on certain guest operating systems. The hardware emulation allows the network administrator to run and interact with an embedded operating system from a desktop that couldn't normally support that operating system. (An embedded OS is a type of operating system that is created to run in dedicated hardware environments or on systems that aren't intended for interactive use.)