The advantage of virtualization is that you can overcommit your resources.
The disadvantage of virtualization is that you can overcommit your resources.
You will need to monitor your hosts and your guests for performance issues, just like you would in a physical environment.
Please read http://blogs.vmware.com/performance/2011/02/perf-troubleshooting-41.html
How far you can overcommit really depends on your environment and what kinds of guests you're running. Some may be CPU-bound in which case you can't overcommit your CPU as much as you might hope. Some may be memory-intensive (java, database) and you won't be able to overcommit your memory as much as you might hope. Other applications may be I/O intensive.
You may eventually find yourself with multiple clusters with varying sevice level agreements.
In our environment, we find that we run out of memory long before we run out of CPU. For our key production applications that are either customer-facing or supporting customer-facing, we find 100 guests on 8 BL460c G7 blades with 96GB of memory each to be "comfortable" - we don't have any balooning or swapping and the CPU is there when it's requested. For our dev/test environments, we overcommit considerably more than that although we are currently overcommited to the point where the users are legitimately complaining about performance and I have an order on its way up for more blades.
The more you overcommit, the lower your per-VM cost.
There are lots of "rules of thumb" on how much you can overcommit but you need to determine your own sweet spot. Be careful, because this will sneak up on you - a small new guest added here and there may not seem like a problem, but eventually a lot of those small guests add up to a big performance problem.
