The first thing everyone forgets when they dig out their old Windows 95 CD-ROM is that it is not bootable! All the wonderfultm web-guides out there happily tell you to go out and create a new boot-disk, but of course who has floppy-drives these days? Fear not, here's the way...
This guide assumes you already have Microsoft Virtual PC installed, and know the basics of using it. These instructions will also work with VMWare's products, but the steps will differ slightly.
Set up a Virtual Machine
Create a new VM, selecting "Windows 95" as the guest Operating System (OS), or "Windows 98" if that's the oldest listed.
The properties of the machine are not all that important, Windows 95 was a simple beast by today's standards. If you allocate 64Mb of RAM, and 2Gb of disk-space, that will be more than sufficient for now.
Start it up
Go ahead and start your VM now. You should end up at a screen complaining that you have no OS installed.
At this point you need to get your VM to boot, so download a DOS Boot Floppy Image. Extract the IMG file in that archive, and point your VM's floppy-disk drive to it. In MS Virtual PC this is done from the toolbar, "Floppy / Capture Floppy Disk Image..."
Also, insert your Windows 95 CD, and point your VM to that too. ("CD / Use Physical Drive D:")
If you now press any key from within the VM, it should boot into good old DOS!
Your hard-drive is currently completely blank, so the install program on the CD won't be able to see it. To remedy this, you need to create the partitions on the disk. Use the following commands:
Type fdisk and press [Enter]
Press 1 and then [Enter]
Press 1 and then [Enter]
Press Y and then [Enter]
Press [Enter] and your VM will now restart, and it will have a nice shiny 2Gb partition on it.
Format the partition, by typing format c: and pressing [Enter]. Press Y and [Enter] to confirm the format. Type in a name for the drive if you want, and press [Enter].
You should now be ready to install. This boot-floppy puts the CD-ROM drive on the letter R:, so type in R:\SETUP.EXE to begin the setup.
I won't detail all the Windows 95 setup, just configure it however you like.