VRF-Lite allows a single physical router to virtualize multiple routers by creating independent virtual routing tables (VRFs). Each VRF logically isolates the routing tables and network traffic of customers or applications. The physical router uses VLAN trunking to keep traffic from different VRFs separate when sending data to other devices. Configuring VRF-Lite involves defining VRFs, assigning interfaces to VRFs, and configuring routing protocols for each VRF.