It's virtual drives, and they are kind of like virtual cdrom drives. In other words, when you mount the image, you get an extra drive letter like 'F:', 'G:' or 'H:', and you can use this drive as if it's a cdrom drive with the cd of which the image was made loaded. If you install from this drive, the game will use that virtual drive to check for the copy protection, hence you don't need a cd in the real cdrom drive to play. Also, when you make the image, lower the read speed to 4x or lower. Are you using Alcohol120% ? It's a bit easier to use and you can find it
here