where does the extra space in virtual storage come from?

Hi

something I don't understand about virtual storage...

for example:

when I create a VM and I assign 1TB hard Drive to it , where does this 1TB come from? lets say my physical machine has only 512GB, I'm still able to assign 1TB to VM! how? where does the extra 500GB come from? same things with the RAM, I can assign more RAM to my VM than I have in my physical machine

sorry if the answer is obvious ,I'm new to this and its very confusing