If Microsoft made all their products this good, we would have no complaints. This thing works so smooth it is amazing. Basically, you download the installer (only 30 MB - first pleasant surprise) and run it. You then have the Virtual PC Console which is a program to manage your virtual machines.
Maybe I should back up a little to explain the concept of virtual machines for those who don't know. A virtual machine is a separate PC (with different hardware) and its own operating system running within your current OS.
So, from the Virtual PC Console, you create your virtual machines. This is done through a simple wizard which allows you to choose your OS and adjust certain hardware settings like RAM and hard disk space. Now, you are using actual RAM for your virtual machine. Hard disk space is also used but a separate virtual hard disk file is created for your virtual machine. So, if you want a 2 GB hard disk, you will find a 2 GB hard disk file created for the virtual machine and your actual hard disk's free space will decrease by 2 GB.
Now you have a virtual machine ready for use. You then have to install your OS. This is done just like you would with any other PC. You pull out your install CD's (or floppy's for older OS's) and go to work. You may even have to create a partition and format it for some OS's (like Windows 98). It is just a trip to watch the Windows 98 installer running within Windows XP. When you are done, you have your new virtual machine ready for use.
I have been using this for about a week now (GATT site was down so I had to find some other way to occupy myself). I installed Windows 98 on my virtual machine and allocated 256 MB of RAM and created a 1 GB hard disk. The thing runs really fast. If you have ever tried any kind of emulation or virtualization before, you will be amazed by this. I installed Caesar III (which refused to run on XP) and it runs perfectly. The cut scenes skip a little but I remember that happening back in Windows 98 days.
Microsoft says that OS's from Windows 98 to present are supported with Virtual PC 2007. This means that you can use special Virtual PC additions within those OS's. You can share folders with your host and virtual machine OS's and other interesting features. Even though other OS's are not supported, that does not prevent them from working. I tried successfully to get Linux to work in a virtual machine and I believe that even MS-DOS will install.
You may be wondering what the benefit is to running a virtual machine. It is simple. You can run programs that will not run in XP (assuming you currently run XP) or just try out another OS without screwing with your current OS. I can finally run Caesar III with no worries. I am sure there are many who would like to try Linux without partitioning their hard drive. This enables you to try it.
When you are done with it, you just delete your virtual machine and your virtual hard disk. It is that simple. Now, since your virtual machine and virtual hard disk are just 2 files, you can copy and save them to any media you like for later use. So, it is possible to do a fresh install of Windows 98 on a 500 MB virtual hard disk and save the files to a CD (or USB flash drive). Ponder that for a bit, you should.