Docker allows applications to be packaged with all their dependencies and run in isolated containers. This makes test execution using Selenium simpler and more efficient compared to using virtual machines. Docker containers have a smaller footprint than VMs, starting up faster. Building a Selenium grid with hub and nodes inside Docker containers allows easy setup and scaling, while using system resources more efficiently than maintaining VMs. Docker is a cost-effective solution for running Selenium tests compared to maintaining a Selenium grid on virtual machines.