Virtual currency is used in a MUD or other game that has a virtual economy. Virtual money may have weight, perhaps each coin may weigh a gram and may be denominated. For example, on BatMUD, while the usual unit is gold, coins may be found of more precious metals: platinum, worth 10 times gold; batium, worth 50 times more; anipium, worth 100 times more; and mithril worth 500 times more. There are also inferior denominations: mowgles, worth 0.01; zinc, worth 0.05; tin, worth 0.01; copper, worth 0.02; bronze, worth 0.04; and silver, worth 0.06. Given that all the mowgles that a player can carry, perhaps 100kg, is worth only about 100 gold, there is a merchant guild skill "exchange money", which, if well trained permits conversion of lower denomination coins into high coins.
Virtual money isn't backed by gold or governments: it's backed by fun.