How to create virtual machine environments?

If you want a free solution, download Virtual PC 2007.

Install it and then it should be straight forward - You treat each and every virtual machine as its own physical computer, so put in the CD/DVD or mount the ISO (or mount the VHD) and away you go.

If you don't mind paying, I highly recommend VMware Workstation, at the end of the day, you will be able to accomplish the same, but Workstation has so many features (such as snapshots) that I just could not do without.

VirtualBox is a nice cross-platform, free application which allows you to do this. You can emulate nearly every operating system under one-another. The full list of compatible guest operating systems can be found here.

Once you install the program, you can create individual "virtual machines" for each computer. You can make each have it's own hard-disk (or multiple ones), each with bridged networking and USB device support.

Another nice thing is that you can load up ISO files into the virtual CD-Rom driver, which is much quicker than conventional "load from disk" (most hard-drives have a higher throughput than all CD/DVD drives).