Virtual reality refers strictly to an artificial immersive environment generated by a computer. For example, the environment you're in when you put on one of those helmets and you navigate through a 3D computer-generated world.
Some people tend to call any ThreeDeeInterface a virtual reality. This is wrong. The proper terms for advanced non-immersive interfaces include CyberSpace and AlternateRealityUserInterface.
Terminal eyestrain and fatigue problems
Unfortunately, virtual reality (especially of the augmented reality variety) will never become very popular. And the reason why is very simple. When you generate images for the human eye, it has to focus at the distance to the screen which the image is projected on or from. Except that 3D images make people's brains tell their eyes to focus way off of the proper focal distance. And that causes eyestrain and headaches. Virtual reality will founder on the dumb fact that it causes eyestrain.
That's like saying "reality will founder, because some things are far away and you have to strain to see them." That's where our eyes evolved, dude!
There are many causes of eyestrain and similar strain and fatigue from VR, but that particular one, of focal distance, is not inherent; the military has used heads-up displays with infinite focal length for decades. That method is most easily achieved via folded optical paths, which is bulky and expensive, but nothing in physics prevents better implementations (holographic lenses have been used in special circumstances, for instance).
Can you tell us how serious the fatigue problem is for VR, an idea of how many different causes of strain there are, and about what proportion of it is inherent to VR?
3D interfaces are sufficiently important in some niche applications to bite the bullet of eyestrain.
Current applications in Molecular Science: http://www.cnn.com/2004/TECH/science/01/02/coolsc.visualization/index.html
A variation is AugmentedReality where information about what you are looking at is superimposed on your field of view RealTime, typically with a small head mounted display. See http://www.sciam.com/article.cfm?articleID=0006378C-CDE1-1CC6-B4A8809EC588EEDF
Unfortunately, virtual reality (especially of the augmented reality variety) will never become very popular. And the reason why is very simple. When you generate images for the human eye, it has to focus at the distance to the screen which the image is projected on or from. Except that 3D images make people's brains tell their eyes to focus way off of the proper focal distance. And that causes eyestrain and headaches. Virtual reality will founder on the dumb fact that it causes eyestrain.
In theory, you could make screens that project light in proper directions to fake more distant point sources. It wouldn't be easy, but it isn't completely impossible like some other suggestions.
Lots of crap moved to MindReading
Also see: VirtualRealityModelingLanguage, RealVirtuality