the virtual drive software creates a pseudo "virtual CD-ROM" in your hard-disk. when you "mount" or "insert" the .iso files in the virtual CD-ROM, it has the same effect of putting a real CD in a real CD-ROM.
The virtual cdrom is ok but there are some cases where the virtual drive blocks off part of your ram (a la ramdrive). This is ok if the .iso is smaller that you available ram, though not always so since you have to allot ram for the os and your apps and TSRs. Anything larger than your available ram and the virtual drive should allot space from your HD.
The problem I had with some .iso was the path of the files are sometimes fixed to a particular cd drive, for ex. path=d:\xxxxx, not intelligent enough that the path would be adaptive. In extreme cases, the path was fixed. I could have fixed the paths but why bother? I just burned the suckers to a cdrw or dvdrw.