The short answers are:

[*]by utilizing clustering you can allocate the resources of several system to the primary system to increase processing speed.[*]By utilizing a Linux base virtualization environment you can setup several separate OSs running side by side each to accomplish their own tasks on a single machine reducing your hardware costs.

Almost every cloud vendors are using Linux. People like Amazon, Google, IBM etc are using Linux.

Amazon AWS uses XEN for virtualization. Same way you can use it too. There are other tools like KVM, VBox, Vmware etc.

Depending on the preferences of the users, you can setup certain custom VM systems to allocate specific services to accommodated the users' preferences by employing systems design only with those services and which does not take up much resources.