Virtualization is the creation of a virtual version of a device or resource, such as a server, storage device, network or even an operating system.
VMware, Microsoft Hyper-V, Citrix etc
A host system (host operating system) would be the primary & first installed operating system.
A guest system (guest operating system) is a virtual guest or virtual machine (VM) that is installed under the host operating system. The guests are the VMs that you run in your virtualization platform.
There are two basic types of VHDs
A fixed-size VHD is one for which data blocks are pre-allocated on a physical disk based on the maximum VHD size defined at the time of creation.
A dynamically expanding VHD is one for which the initial virtual hard disk contains no data blocks. Instead space is dynamically allocated as data is written to the VHD, up to the maximum size specified when the virtual hard disk was created.
Source: Portal Content Team