In VMware ESX server 3.0, Virtual machine performance can severely degrade when deploying a large number of virtual machines to a single ESX server. To help resolve this issue, the virtual memory arguments inside of ESX can be adjusted.

Some of the key virtual memory arguments that can be tuned are the dirty_ratio and lower_zone_protection. VMWare includes support for legacy ISA buses that can sometimes cause out of memory kills (oom-kills). By protecting this lower zone the propensity for oom-kills to occur can be lowered significantly.
For information on adjusting Linux virtual memory parameters please refer to the following tutorial (Login required as a part of USENIX membership. if you are an IT pro, I highly recommend joining the USENIX association anyway as you will receive acces to this document as well as many more):
https://www.usenix.org/publications/login/2008-04/pdfs/sacks.pdf

However in VMWare Virtual Infrastrcture 3.5, tuning the virtual memory settings for Linux can have the opposite effect, and it is best to let VMWare’s vmemctl Kernel process to handle resource allocation. The best way to tune Virtual machine performance in ESX 3.5 is to use resource pools and by efficient capacity planning.

Performance gains can be achieved by tuning the Linux kernel on VMWare’s ESX 3.0 and better performance and stability can be squeezed out of an over-utilized server. The need to tune virtual memory settings when running Linux on ESX 3.0 increases exponentially when installing any sort of java-based application server on this platform.

For more information on Linux Virtual memory and VMWare performance tuning see http://www.redhat.com/magazine/001nov04/features/vm/ and http://www.vmware.com/pdf/vi_performance_tuning.pdf

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