If I install Ubuntu 10.04 Server, will it provide me with virtual machines which I can use to install different OSes? I need Debian Lenny on a VM for example. What facilities does it provide? Is it a good idea to install it on one server (not a cluster of any kind) meant to serve as a virtual machines host server?
A cloud is a group of servers that share resources for virtualization. When you create a new virtual machine it automatically decides on what server to put the VM and what storage to use depending on the resources left.
It can be seen as a storage pool or resource pool.
There is no real point in setting up a cloud on only one server if you don't intend on adding other servers to the cloud. You would lose performance.
Virtual Machine Host:
You would probably be more interested in just setting up a virtual machine host which will use libvirtd for managing your virtual machines and qemu/kvm for the actual virtualization.
It allows you to use (roughly) the same API and system as Amazon's Elastic Cloud (by way of the Eucalyptus project). It can be useful for compartmentalising your servers - otherwise straight VM's are OK as well.
Services offered include virtual machines which can be spun up/down at will - with the same resource allocation as Amazon, and a separate storage system. If you are considering using Amazon EC2 in the future it would be sensible - otherwise if you will always be a straight VM shop then there is no need.