The information is somewhat conflicting. During the Keynote (or possibly platform state of the union or both), they made pretty big deal about virtualization. In fact, I believe they showed linux running in Parallels on Apple Silicon hardware with Big Sur. They also said they were working with Docker to get that working as well.
Okay, well that is at least somewhat promising... I didn't watch the keynote, just read some recaps. So promising in at least they seem to hopefully be planning to support some level. I will admit to having very little real experience with Docker short of a few experiments, but I don't think that is going to be a great consumer experience; might help with dev and geeky stuff though.
So my best guess is that Parallels will use it's emulation layer (probably with help from Apple), Docker containers will also use some kind of emulation (perhaps a restricted licensed version from Parallels/Apple), that Big Sur has some kind of lower-level virtualization stuff (like a hypervisor) in the OS to help out with these kinds of efforts.
Yeah, I just worry that without the hardware support in the processor then they are at a disadvantage. I guess one could argue that fewer people need all that much performance out of a VM setup these days, so maybe that is acceptable. I believe Apple, at least at one point, actually had a hypervisor extension. In Parallels you could choose to use Apple's or their own, though I am almost positive that required the hardware capabilities (specifically the Xeons). Been a while since I looked at that though.
Parallels is a decently impress software suite; I'm surprised of the performance you can still get out of even somewhat older MacPro hardware (circa 2012) within the VM. I just find it slightly harder to believe VMWare will invest any effort into it, and I don't
think VirtualBox runs out of x86 family, though to steal your phrase, "I could be wrong, wouldn't be the first time."
(Or people will say "who cares" about virtualization when their Mac laptop lasts 4x as long on battery...
)