Virtaul Hard Disk (VHD) is basically a file format that contains complete structure of a hard disk. It is a virtual machine hard disk that can reside on a native host file system encapsulated within a single file. It is used to store virtual operating systems, their related program files and it acts like a proper hard disk. Now, you won’t need any third party tools to create and attach VHD, Windows 7’s Disk Management comes with an option to create, attach and detach the Virtual Hard Disks instantly.
To create Virtual Hard Disk in Windows 7 go to Start menu, right click Computer and choose Manage.
Now to create VHD , click Disk Management and choose Action > Create VHD as shown in following screenshot.
A dialogue box will be loaded where you can make necessary settings for creating VHD, specify location, size and virtual hard disk format (it could be dynamically expanding or Fixed size).
Click OK and VHD will be created and it will be displayed in Disk Management along with other disks.
Now the last step is that you will need to attach it in order to make it functional You can do so from Action > Attach VHD, browse and specify the .vhd file which you created in above mentioned step and click OK to attach it to your system.
Thats all, now you can use the virtual disk without any fuss. Enjoy!