The vmmemctl driver collaborates with the server to reclaim pages that are considered least valuable by the guest operating system. The driver uses a proprietary ballooning technique that provides predictable performance which closely matches the behavior of a native system under similar memory constraints. This technique effectively increases or decreases memory pressure on the guest operating system, causing the guest to invoke its own native memory management algorithms. When memory is tight, the guest operating system decides which particular pages to reclaim and, if necessary, swaps them to its own virtual disk.
Note: You must configure the guest operating system with sufficient swap space. Some guest operating systems have additional limitations. See Swap Space and Guest Operating Systems.
2)Transparent Memory Page Sharing
Transparent page sharing is a cool feature of ESX Server that allows VMs to share memory pages that have identical content. If a VM needs to modify the shared data, then the VMkernel creates a new copy for the VM that it can modify. The Operating Systems are not aware that they are sharing memory with other VMs (hence, the name - Transparent page sharing implies)
My Understanding : VM kernel will keep monitoring all VM's Memory Pages and eliminates to occupy the space for redundant copies among various Memory Pages - Instead maintain one copy of common Memory Page ( rest of VM's will have pointer towards this)