Software instruments earn this name because they operate entirely as software with no dedicated hardware, instead of utilizing the host computer’s CPU and internal or external audio hardware to generate sounds in place of the dedicated, proprietary hardware of most of the keyboards and synthesizers.
Software instruments can be of relatively simple design, such as a collection of samples with a playback engine, or they can use complex modeling algorithms to emulate analog synths of the past.
Example of usage – “Software instruments often can operate in two modes. First, they function as a plug-in in compatible host applications such as Pro Tools, Digital Performer, SONAR, or other DAWs. In addition, many virtual instruments can function in standalone mode, which means they can be played and programmed without requiring a host program to be open.”