API virtualization allows for faster development, testing, and delivery of APIs. It involves simulating API responses without accessing the actual implementation through techniques like static mocking, dynamic mocking, and runtime simulation. This allows isolating components, enabling early development and testing, and providing sandboxes. Virtualization can be done by generating responses from API definitions, capturing real traffic, or refining with dedicated tooling. It is particularly useful for complex systems with many interdependent components and external dependencies.