Virtual PC is freeware from Microsoft to run different operating systems within Windows. Which means you can run Windows XP, Vista or Windows7 just like any other program inside a window in your current Windows.
Installing Virtual PC is very easy compared to traditional method of running multiple OS like partitioning the hard drive, implementing dual boot etc. You can find more details on virtual PC, installing Virtual PC, create virtual machines etc. in this guide.
The resources you get for Virtual PC OS is subset of what you have in host PC. For example, if you have 3GB RAM in host PC, you can allocate only values below 3GB for guest OS, like 1GB or 2GB etc. if you allocate RAM very close to what available in host PC, Virtual PC will issue a warning.
Latest version of Virtual PC is called Windows Virtual PC, it requires Windows 7 for installation and also your PC hardware should have hardware virtualization support. If you are using Windows XP or Vista or your computer do not have hardware virtualization support then you can download Microsoft Virtual PC
After downloading and installing Virtual PC, you have to create virtual machine before you can install any OS into it. For creating Virtual machine, there is a wizard which will ask you details regarding the virtual machine to create, like the amount of RAM to allot, file name of virtual hard drive (vhd file), etc.. After you create a virtual machine you can adjust its properties using settings option in Virtual PC console. Once virtual machine is created and configured, it is ready to install operating system into it.
When you select the new virtual machine in virtual pc console and click start, you will see the usual black screen (with RAM checking, harddisks check etc) which you see when you switch on the computer, except that it is running inside a window. Before installing OS it will display "Reboot and Select proper Boot device or Insert Boot media in Boot device". To install new operating system, insert the installation disk in CD drive and choose, "Use Physical drive E:" from the CD menu of your virtual machine. Now restart the virtual machine using reset in Action menu. Now if the installation CD in CD drive is bootable CD, the installation process will start and it will install just like you install in normal PC.
To make the Virtual OS full screen and get a feeling of running standalone, you can use shortcurt Right Alt key + Enter
Installing Virtual pc additions in the Virtual OS add these features to virtual OS
Virutal machine additions are available for install if Virutal OS installed is Windows 98 or above. To install virtual machine additions, choose "Install or Update Virtual Machine Additions" in Action menu after booting the virtual OS.
Note : if you are installing Windows7 in Microsoft Virtual PC make sure you have version 126.96.36.199 or higher or else installing virtual additions will cause Blue screen of death(BSoD) inside virtual PC and also no sound will be there.
Microsoft officially support only Windows operating systems within Virtual PC but you can technically install other OS like Linux. In case Virtual PC do not suit your needs there are plenty of similar products both commercial and free. VirtualBox from Sun Microsystems and VMWare Player are two popular similar products ( both free for personal use).