VM does not mean Virtual Memory in this context. VM does mean Virtual Machine. When an OS/DPMI Server/Supervisor/Monitor provides an OS or program a virtual interface to HW interrupts, IO ports, SW interrupts, we say that OS or program is being executed in a Virtual Machine.
For things like Windows 3.x, 9x, OS/2, CWSDPMI, DOS/4G (DPMI & VCPI), Paging & Virtual Memory was an optional feature. In fact, CWSDPMI/djgpp programs had flags (using `CWSDPR0` or `CWSDPMI -s-` or programmatic calls) to disable Paging & Virtual Memory. Also, djgpp’s first DPMI server (a DOS extender called `go32`) didn’t support Virtual Memory either but could sub-execute Real Mode DOS programs in VM86 mode.
http://www.delorie.com/djgpp/v2faq/faq15_2.html