A Virtual Drive allows you to use a single drive letter (d:\ e:\ etc) to specify a path, for example C:\Documents and Settings\All Users\Desktop\

In other words a Virtual Drive "is just a link".

A Partition on the other hand is used to devide your memory space on the HDD into parts that is "seperated" from each other. A good use for this is for example to have Win* on one partition and *nix on another.