Every physical sensor is pre-defined to act on purpose. On the other hand, a virtual sensor is destined to act on application needs, perhaps can perform more even in case of a single sensor device. The basic objective of this paper is to explore the conceptual form of virtual sensor with proper explanation. This paper substantiates the theory of the virtual sensor with implementation, algorithms and use cases. The paper presents a taxonomy of virtual sensors depending on their capabilities and deployment layer. The paper also presents some case studies along with experimental results of the virtual sensors in eHealth and environment monitoring domains.