Emulation is where software is used to simulate hardware for a guest operating system to run in. This has been used in the past but is difficult to do and offers low performance.
Native virtualization (or full virtualization) is where a type-2 hypervisor is used to partially allow access to the hardware and partially to simulate hardware in order to allow you to load a full operating system. This is used by emulation packages like VMware Server, Workstation, Virtual PC, and Virtual Server.
Paravirtualization is where the guest operating systems run on the hypervisor, allowing for higher performance and efficiency. For more technical information and videos on this topic, visit VMware’s Technology Preview for Transparent Virtualization. Examples of paravirtualization are Microsoft Hyper-V and VMware ESX Server.
Figure 1: Image Source: VMware.com