Disclaimer: I have yet to test the feature.
My guess is that it doesn't launch a full blown VM, just a new Java process. Java being itself a VM of sorts, it has a limit of memory it can use, which you can specify when launching the process using the -Xm flags.
All in all, I think it is a good thing, since it should allow the server to survive a client crash. Sure the memory consumption is a fair bigger, bit IMHO the advantages outweigh this inconvenience.