For each running virtual machine, the system reserves physical memory for the virtual machine’s reservation (if any) and for its virtualization overhead.
Because of the memory management techniques the ESXi host uses, your virtual machines can use more memory than the physical machine (the host) has available. For example, you can have a host with 2GB memory and run four virtual machines with 1GB memory each. In that case, the memory is overcommitted.
Overcommitment makes sense because, typically, some virtual machines are lightly loaded while others are more heavily loaded, and relative activity levels vary over time.
To improve memory utilization, the ESXi host transfers memory from idle virtual machines to virtual machines that need more memory. Use the Reservation or Shares parameter to preferentially allocate memory to important virtual machines. This memory remains available to other virtual machines if it is not in use.
In addition, memory compression is enabled by default on ESXi hosts to improve virtual machine performance when memory is overcommitted as described in Memory Compression.