Let us assume that you have RAM of 512MB. And You have a program which on execution takes 300 MB and another program taking 300MB. Now, traditionally if we see then these two processes will not fit in RAM for execution.

So, generally, a program is divided into fixed size blocks called Pages. Those pages which are currently required by the program execution are only loaded into RAM. Rest are kept in a backstore called Virtual memory that is nothing but your harddisk. Now both programs and many other can run simultaneously in 512 MB RAM bcoz they will load only those pages which are required for execution. When a page is required and it is not there in RAM, a page fault occurs. This results in copying the page from harddisk to RAM. Thus, RAM appears to be larger than 512MB. Since now it runs processes which require more than 512 MB. This concept is called as Virtual Memory.