I may be confused, but... are you questioning the whole idea of hypervisors on servers at all?
There are a lot of reasons for that. One of the simple reasons is that it's cheaper. When you're working in IT, you often have a bare minimum of hardware you have to buy with each server in order to be safe, e.g. dual hot-plug power supplies, hot-plug RAID enclosures and drives, lights-out management, etc. Because of that, each server you buy is going to end up being about $4k minimum, and the price goes up from there. If you have to buy 5 servers, you might be spending $25k even if they aren't powerful servers. However, you may be able to run all of those servers on a single server that costs $10k. In addition to the initial purchase being less, it will also use less power, take up less space, and put out less heat. All of that means it'll be cheaper of the long term. It will also require less administration. For example, if an important firmware update comes out that requires a certain amount of work to schedule and perform, you're doing that update on 1/5 of the servers you would be doing it on. Oh, and warranty renewals and other support will probably be cheaper.
So more directly addressing the question, which I think was, "Why not just buy one big server and install everything on it?" There are lots of reasons. I think the most important reason is to isolate the servers. I'm a big believer in the idea of "1 server does 1 thing", except when there are certain tasks that group well together. For example, I might have one server run the web and database services for multiple web apps, and another run DNS/DHCP/AD, but I don't really want one server to do both of those things.
And there are a few reasons for that. Security is a big one. There are services that need to be exposed the the internet, and then there are services where I don't want the server running them to be internet-accessible. Putting all of those services on the same physical server creates a security problem, unless I virtualize and split the roles into different virtual machines. Or it may be that I need to provide administrative access to the server to different groups of people, but each can't have administrative access to each other's data. Hosting providers are a good example of this: You and I could both be hosting our web application on the same physical machine at the same hosting provider, and we both might need administrative access to the server. However, I don't want you having access to my files and you don't want me having access to yours.
Another big reason you'll want to isolate your servers is to meet software requirements. I might have one application that runs on Windows, but is only supported up to 2008R2. I might have another application or role that needs to run on Linux. I might have a third role where I really want to use Windows 2012R2 to take advantage of a feature that's unavailable in earlier versions of Windows. How would I put those things on the same server without using virtual machines?
Isolating your servers is also good because it tends to improve stability. Many applications are poorly written can cause crashes or security problems, and keeping them on their own VM server prevent those applications from interfering with other applications running on the same physical hardware. I can even decide how to allocate the RAM and CPU across the virtual machines, preventing any one application from slowing down the rest by being a resource hog.
Aside from all that, there are a bunch of other peripheral benefits. For example, with virtual machines, you have more options for snapshotting, backing and replication, restoring to dissimilar hardware, etc. With traditional installs, I need special software to do bare-metal restores in case something goes wrong, and the techniques used in that software often doesn't work quite right. If virtualized machines, I just need the VM's files copied to a compatible hypervisor, and I can start it up wherever I need to. With the right software, I can even move the whole VM live, without shutting it down, to another physical server.
There are probably a few other benefits that I'm just not thinking of off the top of my head.