The hypervisor is a bit of software on the managed system that relays the instructions from the LPARS to the actual hardware / firmware.
It allows the system hardware to be devided up and controlled by the LPARS, rather than being directly controlled by the operating system.
On power 4 machines you could run the OS directly on the hardware (just like the older machines), or load the hypervisor (go to LPAR standby) and then load multiple instances of the OS (for which you need an HMC).
On power 5 machines you have no choice, the hypervisor loads on power on. Then you can load one OS (if you don't have an HMC) or multiple instances of OS (if you configure LPARS) for which you need an HMC to configure the LPARS.
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