Simple definition
A Type 2 hypervisor is a hosted hypervisor: it runs as an application on top of a conventional desktop or server operating system.
Technical definition
The host operating system owns the physical hardware, device drivers and most resource management. The hypervisor uses services provided by that host to create and run virtual machines, so each VM adds a virtualization layer above the host OS rather than running directly on bare metal.
What is it used for?
Type 2 hypervisors are well suited to labs, development, testing, demonstrations and workstation virtualization where ease of installation matters more than maximum density or isolation.
Key distinction
A Type 2 hypervisor depends on a host operating system. Products such as VMware Workstation, Oracle VirtualBox and Parallels Desktop are typical examples of this hosted model.