Python virtual environments are isolated spaces that allow developers to manage dependencies for different projects without interference. By creating a virtual environment, you can install third-party packages specific to a project, ensuring that the system-wide Python installation remains unaffected. This is particularly useful when working on multiple projects that may require different versions of libraries. Python provides built-in support for creating virtual environments through the venv module, as well as other tools like virtualenv. These environments help maintain clean project setups and facilitate easier collaboration and deployment.