Virtualbox Drag N Drop isn't working

Drag and Drop works only for Linux guests (guest: OS on the virtual machine)

Source:

Added experimental support for Drag'n'drop from the host to Linux guests. Support for more guests and for guest-to-host is planned.

https://www.virtualbox.org/wiki/Changelog

As guitar42697 said, you have to set a shared folder.

I know this is an old question and it's asking about doing the reverse (host is Linux, guest is Windows) but I hope this will help others like myself set up drag'n'drop where the host is Windows and guest is Linux.

In the VirtualBox window with the VM, click Devices > Insert Guest Additions CD image...

It will appear as a mounted CD in the Linux host OS. Follow the steps to install it, then reboot the VM.

Then enable Drag'n'Drop with Devices > Drag'n'Drop > Bidirectional

(you can also choose another option if you don't want bidirectional drag'n'drop)

You may also want to enable Shared Clipboards with Devices > Shared Clipboard > Bidirectional.

I believe you must set up a shared folder, so you can drag things from ubuntu, into the folder, and it will appear in Windows 7, and vice versa. as far as I know, you cannot directly drag and drop items into virtualbox