Virtual memory allows processes to use more memory than physically available, increasing the system's apparent memory capacity. However, excessive reliance on virtual memory can lead to performance degradation due to increased disk swapping. Example: When you have multiple applications running simultaneously, virtual memory enables each application to use more memory than what is physically available. This prevents system crashes due to running out of RAM. However, if the system relies heavily on virtual memory, excessive swapping of data between RAM and the disk can slow down the overall performance of the system.