vSphere uses several memory optimization techniques, mainly to over-commit memory and reclaim unused memory: Ballooning, memory compression and transparent page sharing. Last level of managing memory overcommit is hypervisor swapping (not desired).
When physical host memory is over-committed (e.g. the host has a total of 128GB of RAM but a total of 196GB are allocated to virtual machines), the memory balloon driver (vmmemctl) collaborates with the server to reclaim pages that are considered least valuable by the guest operating system. When memory is tight (i.e. all virtual machines are requesting their maximum memory allocation to be used), the guest operating system determines which pages to reclaim and, if necessary, swaps them to its own virtual disk.