It's probably worthwhile to clarify what virtual reality is not.
A sister technology to VR is augmented reality (AR), which combines computer-generated imagery (CGI) with views of the real world. AR on smartphones has recently garnered widespread interest with the introduction of Apple's ARKit for iOS and Google ARCore for Android. Further, the Vuforia AR toolkit is now integrated directly with the Unity game engine, helping to drive even more adoption of the technology. AR on a mobile device overlays the CGI on top of live video from a camera.
The latest innovations in AR are wearable AR headsets, such as Microsoft's HoloLens and Magic Leap, which show the computer graphics directly in your field of view. The graphics are not mixed into a video image. If VR headsets are like closed goggles, AR headsets are like translucent sunglasses that combine the real-world light rays with CGI. A challenge for AR is ensuring that the CGI is consistently aligned with and mapped onto the objects in the real-world space and to eliminate latency while moving about so that they (the CGI and objects in the real-world space) stay aligned.
AR holds as much promise as VR for future applications, but it's different. Though AR intends to engage the user within their current surroundings, virtual reality is fully immersive. In AR, you may open your hand and see a log cabin resting in your palm, but in VR, you're transported directly inside the log cabin and you can walk around inside it.
We are also beginning to see hybrid devices that combine features of VR and AR and let you switch between modes.