Suppose you have a nuclear stain in one channel and a membrane stain in another, and you want one image that shows both. Virtual Channel builds it. Add it in the layer's Pre-Processing section (Add, Operations (basic), Virtual Channel).
The engine has one parameter, Select gray images: the list of grayscale imagesLoading... available in the current layer. Those can be original fluorescence channelsLoading... or outputs of other engines. Selected images must have the same type, and if you select only one, the engine outputs it without any processing. Images generated in other layers must be imported into the current layer before they can be selected.
The output is a virtual channel combining the information of the selected images. In the reference example, a nuclear marker channel and a membrane marker channel go in, and one image showing both comes out. The Engines Reference doesn't say how the values are combined, whether by sum, maximum or something else, or how values beyond the bit depth are handled. If you need to know, compare output and input values in the Pixel Inspector.
The name has a second, looser use in the reference. Elsewhere it calls any image an engine generates a virtual channel, such as the Ki67 image from Color SeparationLoading..., and notes that such images are visible only in the layer that made them. When documentation says "virtual channel", check whether it means this engine.
Source: StrataQuest 8.1 Engines Reference, ch. 42 (pp. 544–546), ch. 23 (p. 437), ch. 41 (pp. 538, 542), ch. 14 (p. 405).