What data is actually being backed up when a virtual machine image is backed up?

Virtual server backup information Virtual server backup using traditional techniques and specialized tools How to resolve storage issues in virtualized server environments

In a virtual server environment, the actual virtual machine image is stored as a single file. So, that's very different. The operating system, the applications, and the data itself is all stored within a single file.

In VMware, this is called a VMDK file. With Microsoft it's called a VHD file.

Check out the entire Virtual server backup FAQ

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