Unlike XP and previous Windows offerings that stopped dead if you didn't have a product key, this is no longer the case with Vista.You aren't required to enter a key at this point, although there are some strongly worded cautions about the potential for data loss if you choose not to enter the key.
Clicking it will allow you to 'extend' Partition 1 into the unallocated space.
Unlike some partitioning programs that allow you to resize a partition in two directions (larger/smaller), the 'extend' command uses the current size of the partition as the minimum size and allows you to increase or 'extend' it to include the available unallocated space.
Control Panel - Additional Options - Appearance and Personalization - Clock Language and Region - Ease of Access - Hardware and Sound - Mobile PC - Network and Internet - Programs - Security - System and Maintenance - User Accounts and Family Safety machine using VMware Version 5.5.3 Build - 34685 to make the process of capturing the screens easier.
This in no way impacts or changes what you will see on your screen as you go through the different installation steps.
The second item of note is if you want to 'Upgrade'.
you need to start the installation from inside Windows.
The warning makes it clear that if you select a version you don't have a key for, you'll either have to purchase that version or reinstall Vista and select the proper version.
This screen is a two step process; selecting the appropriate version and then certifying you have selected the version of Vista by using the checkbox.
The only difference will be at the end when the install is completed and the desktop appears.
In order to keep this article short I've eliminated all the steps involved with setting up VMWare to facilitate this installation.
There is one 20GB hard drive available and it's all unallocated space.