W11 Pro - Response to 'Specify the virtual hard disk location on the machine'

Whilst I specced and built my machine myself, please can I receive some help as a newbie to virtual disks.

When creating a virtual hard disk in Windows 11 Pro, is the response to 'Specify the virtual hard disk location on the machine' the drive letter of the partition (not the whole disk) that I wish to be treated as a virtual disk, or the location of a file that tells Windows 11 where the virtual disk is? Reading posts online indicates both. Logic and the precise phrase tells me that it is likely the former (the partition that I want to allocate as a virtual disk).

I ask because the partition already has a drive letter, and during the VHDX creation process that I just aborted I am prompted to choose yet another - but when I am done I will use Storage Spaces to use the virtual disk to expand a physical disk meaning I just wasted two drive letters. This sounds pedantic, but it matters if true as I will run out of drive letters due to how the machine is configured to support what it is used for.

Many thanks for educating me.

No, it's simply the location all files will be stored for the specific VM will be stored this includes a file that is the virtual disk. Too anything outside of the VM this is typically just a single file such as a vhd or vhdx file (the actual virtual disk)

If it's not a VM but really just a virtual disk then it's just the location of the vhd or vhdx file

Thank you for your clarification, neemobeer, and apologies for my slow acknowledgement. A family health matter has kept me offline until now. I am though grateful.