This menu option runs a host utility to create a virtual disk container file.  The image below shows the user interface to this utility.

Select a disk type from the list and enter a path specifying the name and location for the created container file.

The final item in the list of disk types is Custom.  Selecting this option allows you to enter a user defined disk size.  Further options related related to the disk configuration can be specified in the configuration file and are documented in the DK object reference.