Can you explain what virtwl.ko is? I tried looking it up but couldn't find anything even remotely relevant when searching for that term.
It doesn't really have a better name. It was written by Google to allow Android apps to run inside a VM on ChromeOS. Although it does work with mainline Linux, Google is understandably not motivated to invest effort in branding virtwl.ko with a non-cryptic name, or marketing it as its own project independent of ChromeOS. AFIAK nobody outside of Google was using it until Alyssa (same person responsible for the panfrost awesomeness) got it working on Linux.
As for what it does?
Wayland clients and servers must (a) run on the same physical machine (b) as processes on the same kernel. Virtwl.ko removes requirement (b), allowing the client to be inside of a VM.
This way of using Wayland and VM's seems very interesting and useful. What I'm wondering though, is whether it would be realistically possible to also expose some kind of GPU acceleration to clients in VM's, for example by means of a virtual OpenGL adapter such as VirGL, which itself uses virtio on top of the host GPU driver. This would not get you anything near the performance required for games, but it should be way better than software rendering inside the clients. Do you think something like this would be possible already?