Everything that we know about our reality comes by way of our senses. In other words, our entire experience of reality is simply a combination of sensory information and our brains sense-making mechanisms for that information. It stands to reason then, that if you can present your senses with made-up information, your perception of reality would also change in response to it. You would be presented with a version of reality that isn’t really there, but from your perspective it would be perceived as real. Something we would refer to as a virtual reality.
So, in summary, virtual reality entails presenting our senses with a computer generated virtual environment that we can explore in some fashion.