A virtual signifies an action performed by an external hotfolder based program with a source folder (the folder where the virtual action originates) and one or more target folders.
Since another program is supposed to read files from the folder where the virtual action originates WebFlow cannot also read from the folder.
This option is only available if monitor external program is turned on for originating folder.
If option is checked webflow will display an error (and send an alert if it is turned on) unless a file with the same name appears in the destination folder for the virtual action; so you know that the external program has produced an output file. The destination folder folder must be a WebFlow source folder (and WebFlow must read files of the appropiate file type) for this functionality to work.