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12000 VMs = 800 to 1200 baremetals. Since KVM can run vmdk images, it is more of how to manage all these barementals and VMs from a central place.

We have run 8,000 VMs on ~120 servers

That depends, on a modern Epyc, you can easily run a few thousand VM's on one system.

How do you run thousands of VM's on 192 physical cores? That must be assuming that large percentage of VM's are idling most of the time.

That's pretty commonly the case.

I understand but I'm just curious to learn under what conditions.