A Virtual Hard Disk (VHD) is a file format that simulates a physical hard drive. It allows users to store data, install operating systems, and run applications in a virtual environment. VHDs are commonly used in virtualization software like Microsoft Hyper-V and VMware, enabling multiple operating systems to run on a single physical machine. VHDs can be easily created, modified, and deleted, making them flexible for testing and development purposes. They can also be backed up and restored like regular files, providing a convenient way to manage data without needing additional hardware.