As simply as possible, Paragon's virtualization software A) clones a hard drive partition to a VHD [Virtual Hard Drive], & B) works its migration magic, removing registry entries for core hardware drivers, so that Windows will start & then proceed to add needed replacement drivers. Can you do it without their software? Sure... Don't need any software really -- should work as well to 1) create a .vhd file/drive in win7/8, 2) clone a system partition to that .vhd, 3) create a new VM using that .vhd, 4) start that VM running a repair install using a Windows setup disc or ISO. Paragon's software is easier, plus you don't have to jump through hoops to create a VMWare or V/Box VHD, mount it, & then clone your partition to it [Windows only does .vhd natively].
I think Paragon's software, particularly their virtualization stuff is really great, but I don't want to give anyone false impressions. When their virtualization stuff 1st came out I was super excited -- then I used the software quite a bit and found much of my excitement was unfounded. It's not that the software didn't work well -- it did its job better than I had dared hope... Windows installs migrated to VMs were just kind of meh. There was a reason behind every hardware upgrade I'd performed over the years -- these VMs reminded me of that.
VMs [Virtual Machines] are cool, but only useful in limited situations. And they ALWAYS have downsides that should be weighed against any positives. Unless you're running a special host OS, VMs don't have enough resources to be fast -- you still have to have enough to run Windows. You don't have direct hardware access to any real hardware, so anything requiring that sort of thing is out, DX support is minimal, if present, and all the added software layers slow things down along with the reduced reduced resources you have available. There's the potential for software bugs in the VM host software itself -- one recent V/Box update deactivated Windows VMs across the board. It's possible to set up some pretty advanced networking, but getting that set up & actually working requires a bit of tech expertise &/or experience. VHD hard drive maintenance can be a real chore. Windows maintenance can be a chore for that matter -- the idea of using a VM so you don't have to hunt up & install software in win7/8 may sound like a time saver, until you realize that every Update Tuesday for example you've got twice the work.
VMs are good when you want to isolate a copy of Windows -- when you read articles, blogs etc. written by security experts they always talk about how they test whatever in VMs. They can be good for flexibility -- corporate IT can use one piece of hardware for several different kinds of servers, all depending on which VM(s) is(are) run -- I can run a 32 bit copy of win7 without having it installed. They are fast & easy to restore, simply by copy/pasting a known good copy of the VHD over the top of the old one you want to replace -- corp. IT can have a basic, up to date copy of Windows that runs for everyone by duplicating the same VHD file, &/or keep individual copies that have been modified, and make those available pretty much anywhere, almost regardless the hardware used by the employee. You could use the exact same copy of Windows, with all your customizations, files etc., in every office on every PC.
VMs **may** be cool when you need to run old software, but that's usually only a temporary or last resort -- never the best option. There are fairly few apps that can't be replaced with newer versions or software designed for the main, host version of Windows you're using. They'll run better & you don't have extra work or overhead. As a transition from XP to 7/8/8.1, in my experience it's less work & faster to just dual boot, going into XP proper when/if you need to, even if it's only to collect some registry entries -- you not only have the overhead of setting everything up, but the continual overhead or having to start the VM, and the slower speeds once you do get it started. As far as transferring a working copy of XP to a VM, in my experience, as a VM that copy runs too slow to be all that useful -- better IMHO to endure the pain of freshly installing XP to a new VM, along with all the updates. It could just be me & that old XP Pro install that's been around since early 2008, and I do hope that anyone deciding to try this has better luck, but after spending considerable time migrating that copy of XP to a VPC & V/Box VMs, I found it too sluggish to use on any regular basis.
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Now to Virtualization Mgr itself...
As is common with Paragon software prgiso.dll, msvcrt.dll, & msvcp60.dll are slated to be added to Windows system folder -- I normally add them to the software's program folder to prevent any potential issues with different versions used by different Paragon apps. It also makes these apps near or fully portable, though you will still get new registry entries, usually just cache related more-or-less garbage stuff. When I say the program folder I mean the one that's normally labels Preogram, where you'll usually find the launcher.exe -- in this case it's explauncher.exe. When I say near portable, if the app uses drivers those functions that need those drivers will not work, e.g. I can't mount backups in their backup app running portably.
As is common with .msi setup files, you'll get a bunch of what I feel are needless registry entries, plus .msi files added to the Windows folder. In this case it's not a huge deal, with 364 new registry entries recorded, many of those cache related. Still, it's a habit of mine to avoid the .msi baggage, & so I just used Universal Extractor to expand that .msi file. This gave me a System32 folder, with those 3 files I mentioned earlier -- & which I dragged/dropped into the Program folder [Paragon Software\Virtualization Manager 14 Compact\program\] -- and that Virtualization Manager 14 Compact folder itself, which I dragged/dropped into the Program Files (x86)\ Paragon\ folder with my other Paragon apps. Note that monitoring installation I recorded no Paragon specific entries that the software might use -- the closest I came was uninstall keys, which since everything is now in that single folder, are useless to me.