I need to take an incremental or differential backup of a Linux guest OS running inside VMWare workstation. How do I achieve that? I can take a full backup when the virtual machine is down, but I want only the differentials to be backed-up and that too while it is up and running.
If you are using a recent version of VMWare Workstation, Snapshots should you first choice.
They match your requirements exactly, being incremental, with the ability to save and restore at any point.
For backups outside of the VM (maybe to an external HDD),
rsnapshot works well. Use this tutorial (share the files to the host machine, then back up from that folder). You can also do backups over the network, in case you use a backup server.