Linux filesystems can get fragmented, just usually less dramatically. ext4 has an online defragmentation tool, but I do not remember what it is called and unless I know your distro, I wouldn't know what package it would be in. If your virtual disk is set to expanding rather than fixed size, no filesystem is going to keep it from becoming fragmented unless it's on its own separate partition, which of course defeats the purpose of using an expanding virtual disk.
I say do just as that screenshot says, but I suggest throwing in a few extra steps.
- Boot the VM, then defragment the boot drive. I suggest using Defraggler since it is a lot more thorough than the one built-in to Windows. Just don't install the Yahoo toolbar it offers, I've seen that darn toolbar break IE more times than I can count.
** If you want to be really thorough, remove the pagefile and use msconfig to boot the VM into diagnostic mode (not safe mode). Then defragment, re-enable the pagefile, use msconfig to bring it back to normal startup, then reboot.
- Open VMware tools in the VM and shrink the boot disk. (If VMware Tools aren't installed, use google to find sdelete.exe, which will be on Microsoft's website. Open a cmd window and run sdelete C: -c) After it prepares to shrink your disk, it might ask if you want to shrink it now. Go ahead and say no, then shut down.
- In the Virtual Machine's settings, select the disk, then click "Shrink". Wait for that to finish, then click "Defragment". This will just move the disk file to the next available contiguous space large enough to fit it. The shrink in the steps above make it smaller to help it find a good spot where it'll stay in the fewest number of fragments as long as possible.