A virtual switch, aka "vSwitch," will create tunnels to build a full mesh of connectivity to other vSwitches in the network. In this type of design, the physical network is often known as a tunnel fabric to highlight the relationship between the tunnel mesh and physical network. More generally, the use of tunnels is known as overlay networking.
Today, a modern x86-based server can easily handle the load of tunnel encapsulation at more than 10Gbps, and Intel tests show up to 40Gbps performance (under optimal conditions) with CPU consumption at about 20 percent of a single core. Planned technology from Intel promises higher server-based networking performance in the next three years.