The balloon driver, as others have pointed out, is used in an overcommit scenario as a way for the hypervisor to reclaim memory from a guest OS. There's a balloon driver loaded in to the guest which can communicate with the hypervisor. When the hypervisor needs more physical memory, it can ask a guest's balloon driver to inflate and start allocating physical memory pages. That will cause the guest to start reclaiming unused memory using it's native techniques; a Linux guest, for example, might destroy unused file buffer caches. The balloon driver can then release all the memory it's allocated and the guest won't bother reclaiming anything until it needs it.
