Holo, you're not the village idiot - if anything, the folks who coined the terms should be referred to a village idiots.
Virtual Desktops are as Zidane mentions - multiple desktops that can be doing different tasks simultaneously. Think of it as a person with 1 monitor actually having 4 virtual monitors - monitor 1 is running an email app full screen, monitor 2 is running a browser full screen, monitor 3 is playing a video, and monitor 4 is currently empty - something like that. Now, this user can switch from virtual desktop 1 (aka monitor 1) to virtual desktop 2 (aka monitor 2) and so on.
Virtualization of the desktop, screen , and operating systems is, in fact, similar, but they operate at very different levels. VMWare, VBox, and Virt PC give you a virtual operating system - not just another copy of your screen, but the entire OS.