Beginning with Windows Vista, Microsoft virtualized some files & the registry. Virtualization basically means that, applications are prevented from writing to System Folders in Vista’s file system and ALSO to the ‘machine wide keys’ in the registry.

Registry Virtualization basically means that, applications are prevented from writing to System Folders in Windows Vista or Windows 7‘s file system and ALSO to the ‘machine wide keys’ in the registry.  However, this does not prevent standard user accounts from installing or running applications.

In Vista / 7, the UAC utilizes the Registry Virtualization Feature, to redirect attempts to write to subkeys of 
HKEY_LOCAL_MACHINE\Software
When an application attempts to write to this hive, Windows instead, writes it, to a per-user location, 
HKEY_CLASSES_ROOT\VirtualStore\Machine\Software

This is done discreetly. No one gets to know that this is happening ! 

This is, in short Registry Virtualization, and it is a useful Security feature.

Here is a video by my MVP Collegue Vijay, which explains the File & Registry Virtualization, its limitation and benefits along with a small demo.

File Registry Virtualization in Windows 7 and Vista – More amazing video clips are a click away

Addl Reads:
The Compatibility Files toolbar button & Files Virtualization
De-Mystifying Windows Registry & Registry Virtualization.