The only accurate answer is basically going to be “it depends, we’ll need to see how they’re doing it.” You’re correct that virtualizing an entire system is inefficient. Outright attempting to emulate the entire Xbox would likely be a struggle, even on good hardware. But a translation layer (like WINE) can be extremely efficient, because it allows you to simply translate things from one system to another.

For example, DirectX is a proprietary Microsoft driver, developed for both Xbox and Windows. It’s what allows for things like native Xbox controller support on a Windows PC. It’s also a large part of why Xbox games were fairly straightforward to port to PC, meaning games could release on both the Xbox and PC to hit both markets.

Linux doesn’t natively run DirectX, because it’s proprietary. So anything relying on DirectX will fail if you try to boot it directly on Linux, the same way a Linux program would fail if its dependencies were missing. But Linux can use a translation layer like WINE to translate a program’s DirectX API calls into something that Linux can use.

So a program boots in WINE, and attempts to call DirectX’s API. WINE simply takes those API calls, and translates them to a Linux-native equivalent for your OS to use. Notably, WINE is not emulating the entire Windows OS. It is simply translating the API calls back and forth so the program and Linux can talk to each other. The program likely doesn’t even know it’s running on Linux. It thinks it’s talking to DirectX’s API, because it is getting successful inputs and outputs.

You don’t need to virtualize the entire OS, when you can simply translate from A to B and back again. This can be extremely efficient, because it allows you to boot only what you need, instead of booting the entire Windows OS. If your Linux install only takes up 60% of the resources that Windows would, and then WINE takes up an additional 30%, that means you’re still running 10% faster than native Windows.