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The last item to configure before creating the virtual machine is the storage space for the guest operating system and corresponding user data. This takes the form of a virtual disk image or pre-existing storage. A virtual disk drive is essentially an image file hosted on the file system of the host computer which is seen by the virtual machine as a physical disk drive.
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Options are available to create an image disk of a specified size, select a pre-existing volume or to create a storage volume of a specified format (raw, vmdk, iso etc). Unless you have a specific need to use a particular format (for example you might need to use vmdk to migrate to a VMware based virtualization environment at a later date) or need to use a dedicated disk or partition, it is generally safe to simply specify a size on this screen. The option is also available to pre-allocate the space now. If you choose not to pre-allocate the space, space will be allocated up to the specified maximum only as it is needed by the guest operating system. This has the advantage that space on the host file system is not used until it is needed. Downsides are that performance may degrade as space is allocated in real-time and allocation will fail if another process uses up the free space on the host file system before it can be assigned to the virtual machine: