As you may have correctly assumed by the acronym, a Virtual Local Area Network is a network that is not a physical Local Area Network. It is a logical network that is created on physical network infrastructure.
Rather than create many physically separated networks with its own hardware, VLANs allow for many separate networks on the same physical hardware. See the following physically separated network without the use of VLANs. Each network can be set to a different subnet on the router:
The most obvious benefit of VLANs is cost since less hardware is necessary. Another benefit is performance since smaller networks have a smaller broadcast domain for data brackets. This benefit also allows for greater scalability when creating larger networks that perform well. Notice the reduction in hardware with the use of VLANs. There are still three separate networks in this configuration:
There is flexibility when using VLANs since you do not have to physically modify the network when adding or removing devices from various networks. You can simply tweak the configuration in your network switches/routers. Maintenance time is reduced as a result and of course reduced costs.
We also can't forget about security. VLANs in conjunction with a firewall can help improve security by segmenting the network by particular functions or departments.