Virtual RAM is what your OS gives out to your programs. Hardware devices will also have addresses mapped in this space.

Physical RAM is just that - the physical RAM in your PC. Virtual RAM uses this entirely, and then some. There is a file that maps virtual address locations to physical address locations. The addresses which are in use by programs, but not frequently used, are "paged" (written) to memory addresses in the swap file on the storage device. In this way, programs get the safety net of having every version of every possible library ever written in any permutation of the universe loaded into memory, while the OS can conserve fast storage for other active programs.

This is why 32bit OSes present a variable amount of RAM (less than 4GB) on systems with 4GB of physical RAM. They can only address 4GB of virtual memory, and each device has to use a few of those addresses for their Hardware mapping. So 32bit OSes with more devices actually had slightly less RAM available to programs.

This only scratches the surface. If you want real fun, delve into the Windows 32bit 3GB user mode checkbox.