Virtualising macOS, Linux and Windows on Intel Macs has been relatively straightforward, and device support left to the developer. That won’t work for Apple silicon Macs. This explains what happens, its strengths and limitations as a result.
hypervisor
From Hypervisor APIs in OS X 10.10 Yosemite in 2014, through early VirtIO kernel extensions in Mojave in 2018, and Arm hypervisor support in Big Sur.
Before Apple had even released its Developer Transition Kit, virtualisation was already one of the 3 pillars of software support on Apple silicon Macs.
Why would Apple invest several years of hardware and software engineering just to see what 3rd party developers might do with it?
The Eclectic Light Company 