Here's what I was missing:
The virtualization software (VMWare, Virtual PC, Virtual Server, etc) is not an OS, it's an application that runs on an existing OS (The Host OS). Once it's installed in the host OS, you can install other OS's (Guest OS's) using the Virtualization software. So, there's no "conversion" necessary on your host OS.
Each Guest OS has some files associated with it in the Host OS. There's a file for the virtual disk drive, and a file for the virtual image. Your disk does not need to be specially partitioned or prepared in any way - you just need adequate space on the drive.
With that conceptual overview in place in my head, the rest became easy.
Kev assumed I knew more about the concepts than I did, and gave me pointers to taking an existing installation on some other piece of hardware and converting it into a Guest OS on my Virtual Server. I'll be trying that out for myself one of these days!