I never understood why people cared about it too much, the terms come from a academic paper in the 70s and we're even fully correct back then, and have gotten less an less useful. To make some sense of them it might be better to understand them in terms of use cases rather than implementation, e.g. in terms of KVM someone running a VM or two in addition to a normal desktop Linux (e.g. a kernel developer testing things, or a Windows VM for a certain application) fits into the type 2 model, while a server whos primary purpose is to host VMs it type 1. But with todays cloud or hyperconverged architectures a single host system very often runs VM and actualy workloads (e.g. storage backends or databases) as well. So in my eyes it's a very theoretical concept that doesn't have any practical relevance.
