Faking an RS232 Serial Port

I know this is an old post, but in case someone else happens upon this question, one good option is Virtual Serial Port Emulator (VSPE) from Eterlogic It provides an API for creating kernel mode virtual comport devices, i.e. connectors, mappers, splitters etc.
However, some of the advertised capabilities were really not capabilities at all.

EDIT
A much better choice, Eltima. This product is fully baked. Good developer tech support. The product did all it claimed to do. Product options include both desktop applications, as well as software development kits with APIs.

Neither of these products are open source, or free. However, as other posts here have pointed out, there are other options. Here is a list of various serial utilities:

com0com (current)
com0com - With Signed Driver (old version)
Yet another place for com0com with Signed Driver (Pete's Blog)
Tactical Software
Termite
COM Port Serial Emulator
Kermit (obsolete, but still downloadable)
HWVSP3
HHD Software (free edition)

If you are developing for Windows, the com0com project might be, what you are looking for.

It provides pairs of virtual COM ports that are linked via a nullmodem connetion. You can then use your favorite terminal application or whatever you like to send data to one COM port and recieve from the other one.

EDIT:

As Thomas pointed out the project lacks of a signed driver, which is especially problematic on certain Windows version (e.g. Windows 7 x64).

There are a couple of unofficial com0com versions around that do contain a signed driver. One recent verion (3.0.0.0) can be downloaded e.g. from here.