Windows runs Linux binaries by running Linux in a VM. Something newish is that Windows
also implements Windows by running NT and a Windows UI in a VM.
Running on a hypervisor originated at IBM, on its 370, and is very mature technology. Arguably, an OS running on bare metal is practically an embedded system, these days; There are just so many things that make a hypervisor useful or essential.
The key insight IBM had was that the hypervisor runs under the control of one of its VMs. That means the hypervisor doesn't need to provide a full-featured, comfortable work environment; that is the job of guest OSes. Instead, it manages resources according to policies implemented in an "executive" guest OS not used for, or vulnerable to mistakes or malevolence in, regular user programs.
A modern example of such a system is Qubes, security-oriented OS that hosts and orchestrates Linux, BSD, and even Windows VMs.