VST Allows producers to process audio without the use of hardware, and is easily integrated into a host sequencer such as Cubase or Logic.
There are 3 types of VST devices.
An instrument (VSTi) used for generating an audio signal from MIDI signals, an effect which alters the sound of an audio signal, and a controller, which can be loaded as an effect or as an instrument depending on what you need to accomplish. The controller essentially Sends/Recieves/Generates MIDI signals that can be linked to a parameter on a VST either on it’s own, or based upon an incomming audio signal.
For more information on Virtual Studio Technology visit the patent holder Steinberg.
Microsoft, and Digidesign followed suit to have a nitch. Microsoft (DX) was trying to use the idea of audio signal proccessing to enhance game audio, while Digidesign (RTAS) wanted to expand upon the idea to make a standard with more features for ProTools. Cakewalk picked up on the Direct-X (DX) Architecture for use in Sonar.