Virtual cdrom is used to play/read files from a cd/dvd image (iso in this case) without actually writing it over a physical cd/dvd.
You need to install gmount-iso on ubuntu inorder to create a virtual cdrom.
Techies can install it using the command : sudo apt-get install gmountiso
on your terminal , while others can install it by searching 'gmountiso' on your Synaptic Package Manager application .To run the package manager , goto System -> Administration -> Synaptic Package Manager
Once installed you can start the application from "Applications -> System Tools"
Now just select the iso image and a valid mount point (directory must exist) and then click Mount button. Thats it ... now you can use the contents from the iso image just like you read it from a physical cd/dvd.
If you want to do all this without installing gmountiso app ... you can run the following command from your terminal :
sudo mount -o loop -t iso9660 <full-path-to-iso> <mountpoint-directory-path>
for eg :
sudo mount -o loop -t iso9660 /home/foo.iso /media