A Virtual Cache is a cache that exists in a form of a location. The reward for these caches is the location itself and sharing information about the visit.
Virtual caches were introduced into the geocaching.com site as a countermeasure to physical caches being banned in places such as National Parks. Since no container is required, a virtual cache could essentially be placed anywhere, especially in places where a real container would not be possible or advisable.
Because of the nature of these geocaches, the cache vistor is often required to take a picture or answer a question about the location before they can post. For example, a historical site might require the finder to locate a plaque at the location of the coordinates and find a piece of information on it which would not be possible to find out unless the site was actually visited. That information would be emailed to the cache owner before claiming the cache as a find. A photo requirement usually involves either having a picture of yourself taken in front of a specific object at the cache site, or placing your GPSr next to an object and taking a picture. This is done to verify that you actually were at the site and are not using an old vacation picture or a photo that was found on the internet.
Although many locations are interesting, a virtual cache should be out of the ordinary enough to warrant logging a visit. A common guideline was that a loction should be something "worthy of inclusion in a coffee table book."
Virtual Caches are now considered waymarks on Waymarking.com, though older Virtuals that were created before the posting of the official waymarking website have been grandfathered into the geocaching website.