You can run Ubuntu in a Virtual Machine (like MadDawg suggested) but it would be slower than running it regularly. You can also run Ubuntu as a Windows app using Wubi.
Running straight Linux from a "virtual" drive is not possible (nor possible for any OS.) The only way to have Linux on a virtual drive is through one of the above mentioned methods, neither of which are optimal since Windows will be running as well. If that's what you're doing, then why even bother with Linux?
The best (in my opinion) and most common way of having both Windows and Linux is to partition your existing hard drive to accommodate both. This is not as complicated as it sounds. Partition Magic (mentioned above) can do this, and so can a free and open-source alternative called GParted. GParted is built in to the Ubuntu installer and can automagically repartition your existing drive and install itself alongside Windows without damaging any of your data. Note, however that while Ubuntu will be able to see and access your Windows files, Windows will not see nor be able to access the Linux files (since Microsoft does not include support for such.)
You could also, if you wanted, use GParted first to manually repartition your hard drive. We already have a tutorial here about just that subject (written by yours truly, no less!) You can find it in the tutorials section or by clicking
here.
My advice? Get an Ubuntu CD, pop it in your computer and reboot it. You can run a "live" version of Ubuntu from the CD without making any changes to your computer. If you don't like it, just reboot and remove the CD. If you do, then there's a icon on the desktop that will launch the friendly and easy installation wizard which will walk you through the steps on repartitioning the drive and installing Ubuntu alongside Windows.