A Python virtual environment, or virtualenv, is a sandboxed, independent Python instance that allows developers to isolate their coding projects from the main system environment, preventing clutter and conflicts with installed modules. By creating and activating a virtualenv within a project, programmers can work with a clean slate, installing only the necessary modules specific to that project without affecting the primary Python environment. The process involves creating a virtualenv using a simple command and activating it, which is indicated by the environment's name appearing in the shell prompt. While Python 3 comes with virtualenvs by default, Python 2.7 requires manual installation through pip. Once activated, users can install and manage modules within the virtualenv, ensuring all changes remain contained and do not impact the main environment. Exiting the virtualenv is straightforward, and all modifications are preserved within the virtualenv itself, making it a useful tool for developers to experiment and develop code without risking their primary setup.