How kubelets usually work
Ordinarily, Kubernetes kubelets implement Pod and container operations for each Kubernetes Node. They run as an agent on each Node, whether that Node is a physical server or a virtual machine, and handles Pod/container operations on that Node. kubelets take a configuration called a PodSpec as input and work to ensure that containers specified in the PodSpec are running and healthy.
How Virtual Kubelet works
From the standpoint of the Kubernetes API server, Virtual Kubelets seem like normal kubelets, but with the crucial difference that they scheduler containers elsewhere, for example in a cloud serverless API, and not on the Node.
Figure 1 below shows a Kubernetes cluster with a series of standard kubelets and one Virtual Kubelet: