Is VM emulating an Intel or RISC processor to run Linux?

No. The Linux distributions that are offered for the S/390 and zSeries architecture are native binary ports, just like the versions that run on Intel, RISC, or other platforms. What VM provides is a supervisory layer that isolates each instance of Linux from all the other operating systems on the same physical computer. This allows Linux to run alongside traditional mainframe operating systems, and it allows many separate instances of Linux to coexist on the same system.