"Definitely possible. You can partition a drive with Disk Utility and just install the OS on both. There is a choose location option at the start of the installation process to specify where to install. You could also install on one partition and then clone from one to the other with SuperDuper!
You can hold down option when you boot the computer to specify which one to boot into, and in System Preferences you can choose the default by highlighting it in Startup Disk.
You can also boot from an external hard drive.
Another option for development is to have a second computer (like a MacMini) and use VNC to control it from your regular / main computer.
Edit: Another option if you have a second machine with a monitor is to share your mouse and keyboard from your main computer with either teleport or synergy."