In the physical world of the Internet, appliances are all-in-one packaged hardware and software that are tuned to suit the needs of whatever function they provide. While they provide all-in-one packaging and support, there is usually some additional connotation of performance gains as well. Often, appliances come with custom hardware and chipsets, custom drivers, and custom OSes.
In fact,it is so common to expect performance gains that it is a bit strange to hear about virtual appliances, which at the very least can’t have custom hardware and chips and are unlikely to provide performance benefits. What they do provide, however, is that custom configuration and single purpose functionality that is common with physical appliances.
Virtual appliances come with a more important opportunity — evolutionary virtual appliances will bolster their functionality with built-in integrity and confidentiality capabilities to offset the attack surface overhead of the hypervisor. Watch for it.