The Prepare to Shrink option in VMware Tools prepares a virtual disk for exporting to VMware hosted products (such as VMware Workstation and VMware Server) by using the smallest possible disk files. The Shrink operation zeros previously-used sections of the virtual disk within the guest operating system so that a subsequent export can avoid copying sections of the virtual disk containing deleted data. This is similar to a Secure Delete as performed by the Windows SysInternals' sdelete.exe
utility.
The Prepare to Shrink option is available in ESX 3.0.2 and later versions.
The Prepare to Shrink option is disabled on ESXi/ESX 4.x when there are one or more thin disks attached to the virtual machine. On an ESXi/ESX thin disk, this operation fills unallocated blocks with zeros, causing the virtual disk to inflate to its maximum size.
Note: Shrinking disks is not allowed in certain circumstances. For additional information see Shrinking a Virtual Disk in Installing and Configuring VMware Tools.