Several times I've been asked something along the lines of “why should I install virtual machine additions on a virtual machine? The virtual machine works fine without them, doesn't it?". I thought it is worth it to quickly mention the benefits of virtual machine additions in this post.
The Virtual Machine Additions included with Virtual Server perform several tasks. They allow better communication between Virtual Server and the guest OS, on things such as time synchronization or the ability to shut down the machine on command. But the most important task performed by the Additions is that they patch the operating system so it can work with what is called Ring Compression.
Operating systems normally run on Ring 0 on x86 CPUs. Ring Compression allows the virtual machine OS to run on Ring 1 on the hardware, allowing the host operating system and the virtual machine monitor to run on Ring 0. By using ring compression, the VMM is able to trap instrucions from the virtual machine that otherwise it is unable to catch – such as memory requests. The alternative, at least in Virtual PC (I’m not 100% possitive Virtual Server follows the same approach) is to run the operating system instructions not on the hardware, but on a binary translator. This is the one of the reasons why after installing the additions you see such an increase in the virtual machine’s performance.
Of course, ring compression is not necessary if you have a CPU with AMD-V or Intel VT technology. In those CPUs, the virtual machine monitor runs on a Ring -1, so guest operating system will run on Ring 0 without any complications.
You can read more about this topic here or here.