Virtual machines basically. Been around for quite a few years now on PC and in server infrastructure. Basically you have the hardware level running a operating system that runs small virtual machines that share the hardware and can replicate what the virtual machine needs in terms of running an application or operating system within it.
Virtual machines have been used on client PC’s to replicate old windows versions or running a Linux operating system within a Windows PC for example.
So in the Xbox One system family the virtual machine is replicating a 360 spec and running it’s operating system installed, or a Xbox OG for that matter. A virtual machine can be a generic setup that replicates best the console it features and games should be able to just be placed inside and ran like they did on the original hardware.
However Xbox games have since Xbox OG ran on a Direct X standard, which separates certain aspects from the operating system level and sends it directly towards the hardware. Resolution, AA, AF and such are good examples. So if the hardware allows it (clearly the Xbox One X does) you can boost resolution and AF outside of what the actual game was intended for on a hardware level. As such boosting these games hopefully becomes available for most 360 games over time, although you’ll always run into cases where they’ll run into bugs etc and cannot do it.