A virtual directory lets you expose, under a friendly name, directories created within your space but outside the main web application’s home directory.
It also allows you to create ASP.NET applications from any directory located inside the main web application (some apps require this).

To view the list of existing virtual directories, open the site properties and select the Virtual Dirs tab:

To create a new virtual directory (after clicking the Create Directory button on the above screen), choose the location of the original directory (in the Folder field) and its new name (in the Directory Name field), then confirm with Create Folder.

After creation, the directory properties are displayed. They are very similar to the properties set at the site’s root directory level:

Creating virtual directories