This VHD Guide from Microsoft describes the scenarios that guided the development of this feature, detailed steps about how to employ the functionality, including image creation, deployment, and maintenance, and the associated tools, scripts, and APIs, you use to create and maintain Virtual Hard Disks.
In Windows 7, a Virtual Hard Disk or VHD can be used as the running operating system on designated hardware without any other parent operating system, virtual machine, or hypervisor. A Virtual Hard Disk (VHD) is a virtual hard disk file format, meaning that it can contain what is found on a physical Hard Disk Drive, such as files, folders, file system and disk partitions.
You can use the Windows 7 disk management tools to create a VHD file. You can deploy a Windows 7 image, in .wim format, to the VHD, and you can copy the VHD file to multiple systems. You can configure the Windows 7 boot manager for a native or physical boot of the Windows image that is contained in the VHD. Furthermore, you can connect the VHD file to a virtual machine for use with the Hyper-V role in Windows Server 2008 R2. Native-boot VHD files are not designed or intended to replace full-image deployment on all client or server systems. Previous versions of Windows do not support a native boot from a VHD, and they require a hypervisor and virtual machine to boot from a VHD file.
Enterprise environments that already manage and use VHD files for virtual machine deployment will find the most benefit from its features.
To create a VHD on Windows Server 2008, you install the Hyper-V server role, create a VHD file, and then start the virtual machine to install Windows from the CD or DVD onto a partition in the VHD.
In Windows 7, native-boot Virtual Hard Disks allow you to create and modify VHD files without installing the Hyper-V server role.
To get started and to create a VHD by using Disk Management, click Start, type Disk Management in the Search box and hit Enter. Select Create VHD from the Action menu. This launches a dialog box that you can use to specify the parameters for a new VHD.
For a full read on how to employ the VHD functionalitydownload this guide from Microsoft : VHD Guide.
Windows Server 2008 R2 and Windows 7 is the first version of Windows to provide native support for virtual hard disks (VHDs).