What does cpu-pinning mean in context of KVM hypervisor with multiple virtual machines

A virtual CPU equates to 1 physical core, but when your VM attempts to process something, it can potentially run on any of the cores that happen to be available at that moment. The scheduler handles this, and the VM is not aware of it. You can assign multiple vCPUs to a VM which allows it to run concurrently across several cores.

Cores are shared between all VMs as needed, so you could have a 4-core system, and 10 VMs running on it with 2 vCPUs assigned to each. VMs share all the cores in your system quite efficiently as determined by the scheduler. This is one of the main benefits of virtualization - making the most use of under-subscribed resources to power multiple OS instances.

If your VMs are so busy that they have to contend for CPU time, the outcome is that VMs may have to wait for CPU time. Again, this is transparent to the VM and handled by the scheduler.

I'm not familiar with KVM but all of the above is generic behavior for most virtualization systems.

You may be overthinking this.

The manual assignment of cores here could actually result in lower performance. In the VMware world, we don't do this unless there are very specific requirements, but for the workload and applications you've described, it's not necessary. Let KVM schedule things and be done. If in doubt, get more cores and sockets. But CPU isn't going to be the limiting factor in such a small deployment.