Just to make it a bit more clear:
The image contains the data from the CD.
The virtual CD drive works like a normal CD drive apart from the fact that you have to mount the image instead of insert a disc into your CD drive.
Your virtual CD drive has a drive letter like your CD drive has a drive letter.
Use Explorer and switch to your virtual CD drive letter. If the image is mounted properly you should see the content of you CD now. Now you can run setup.exe (or whatelse) from the virtual CD drive!