Absolutely Brilliant, Windows XP Mode in 7

Classic wasn't virtualization per se (in that they modified certain system files to replace low-level system calls with higher-level calls into the OSX envrionment), but you were running a full copy of Mac OS 9 (the OS would boot either during OSX startup or when a Classic application was launched).  Classic is essentially Mac OS 9 running as an application within OSX, very similar to how virtualization works on x86 platforms (although Classic is probably more analogous to platforms like Xen virtualization where the kernel must be aware that it's being virtualized to work).

But it's not similar to how Wine works in *nix; you're running the full operating system, with all the advantages (compatibility) and disadvantages (cooperative multitasking, no protected memory) of Mac OS 9.

Classic uses sort of a "halfway" virtualization approach:  instead of running the OS unmodified in a lower-privileged execution environment and intercepting instructions that would normally modify the state of the hardware (disk I/O, display, etc.), they're patching out these calls altogether and replacing them with higher-level instructions that allow it to play nicely alongside OSX.  This makes Classic less generic (you're not going to boot Mac OS 8.5 in Classic), but it means Apple can tune Classic for performance in a manner that's not possible with pure virtualization, while maintaining compatibility with old applications and sandboxing those applications away from apps running under OSX.

Compare this to Wine, which is a compatibility layer.  Wine runs Windows executables natively on a Linux machine; Windows API calls are routed to the equivalent calls in the Wine library.  Here, Windows applications are being managed completely by the host operating system; there's not a copy of Windows hiding in the background managing Windows applications separately from Linux applications.