Expanding disk is a file that stores an image of an expanding virtual disk and resides on your host OS.
While a plain virtual hard disk image file has a fixed size that is determined when the disk is created, an expanding virtual hard disk image file is small initially, its size grows as you add applications and data to the virtual hard disk in guest OS.
Upon creating a new virtual machine, by default, the hard disk will have the expanding format. In terms of guest OS, the virtual hard disk capacity is fixed and equals to what you specified during virtual machine creation. Using disks in this format saves space on your physical computer's hard disk.
For example, if you pre-configured your virtual machine's expanding disk size to be set to 64 GB. After Windows installation only initial 15 GB on your virtual hard disk will be occupied. With the expanding drive, the actual footprint of the .hdd file in Finder will be the same 15 GB. As you add files and install programs, the drive file will expand to contain them, up to 64 GB.
In contrast, if you have a plain disk at 64 GB, Finder will read your .hdd file as 64 GB, even if it's totally empty.
If you need your expanding disk to be larger than 64 GB, go to the virtual machine configuraton > Hardware > Hard Disk 1 > Edit and and increase the size of the image file, then click Apply.
Check this blog post for more information about hard disk resize procedure.