The type of software used to simulate a computer's hardware is known as a virtual machine (VM) or hardware emulator. This software allows users to create virtual environments that mimic the workings of physical machines, enabling them to run multiple operating systems on a single physical device. This emulation supports software development, testing, and troubleshooting by allowing developers to experiment in a controlled setting without impacting the main system. Virtual machines are also crucial in cloud computing, providing resource allocation and isolation for different user environments.