VHD, short for Virtual Hard Disk is a file format that has the complete contents and structure of an HDD, and can be used to store a virtual operating system as well as associated programs.
Microsoft distributes the software, via VirtualPC and VHD is now open to 3rd party developers, via the Microsoft Open Specification Promise.
A virtual hard disk is normally used for backup and recovery, antivirus and security, image management, or disc conversion.
