Emulator is a software that emulate something
Its like the ms flight simulator that emulates a flight
Currenlty there are emulators for old consoles like ps1,dreamcast, gameboy and others.
In case of playstation 1 the bleem emulator gives you the opportunity to play many ps1 games on your pc.
You just insert the ps1 game cd into your cdrom ,run the software(bleem) and you are ready to go!
The most known emulator is the M.A.M.E that emulates all the arcade machine games(http://www.mame.net/)
A few months ago , was released an emulator(VMWare) for operating systems.