debootstrap installs a basic Debian system into a directory, for use with chroot(8). vmdeboostrap is a wrapper around it to install Debian into a disk image, which can be used with a virtual machine (such as KVM).

At the moment vmdebootstrap only works on Debian squeeze, since extlinux on unstable/testing is broken. It'll get fixed, though.

See also:

Just in case someone else stumbles upon this site while searching for vm image creation tools: There's also https://code.launchpad.net/vmbuilder which seems to have quite an nice architecture plus a debian plugin available in some branches (https://code.launchpad.net/~bzed/vmbuilder/debian for example). Debian support could use some maintaince...
Comment by Paul Anselm Wed Dec 14 04:44:57 2011
Note that vmbuilder requires a working VM setup, while vmdebootstrap doesn't (apart from chroot). This makes it possible to run vmdebootstrap on, say, ARM, or inside a VM, without any particular requirements, which is sometimes an important consideration.
Comment by Lars Wirzenius Wed Dec 14 08:39:05 2011