Virtually all Windows 9x games come on CDs and expect to be installed from CDs and most will only run with one of the game's CD in the drive. Several Windows 9x games come on multiple CDs, Baldur's Gate and its expansion pack take 6 CDs, Myst III requires 4, Tex Murphy : Overseer uses 5, Sanitarium comes on 3 and there are too many 2 CD games to count. Even an early DVD conversion like Wing Commander IV needs 2 DVDs.
Optical drives are noisy, require physical effort to change CDs and require you to keep a stack of breakable, scratchable CDs near your computer. Because they have moving parts, drive lifespans are limited. Disk images have none of these disadvantages. They can be loaded in with virtual CD drive software like Daemon Tools and run invisibly to the program.
However, disk images are fairly large and a library of CD images can easily overwhelm the limited, reliable disk space of a Windows 98SE system. Windows 9x is generally not reliable when dealing with hard disks greater than 128GB in size. Windows 9x in general was designed in the days of parallel IDE ports and 28-LBA (at best). Support for more than 128GB requires third party partitioning tools, and drivers to implement 48-bit LBA and probably SATA. Also, if you are running a motherboard based on the popular Intel i440BX chipset or its precedessors and close relatives, you will need a BIOS extension ROM to add 48-bit LBA support. Even with all this, it is not advisable to install Windows 9x on a drive greater than 128GB in size.
One way to deal with the disk image problem is to host the images remotely. In the days of Windows XP, this was easy enough to do via Network Neighborhood. You should access a Windows XP computer from a Windows 9x computer or vice versa. Unfortunately, by Windows 7, the communication via this method was strictly one way : you could send and receive data from the Windows 7 or 8 computer to the Windows 9x computer, but Windows 9x would be unable to access the data on a Windows 7 or 8/8.1 computer. I assume Windows Vista acts like 7 and 8/8.1 in the regard. This effectively closes off the vast amount of storage available to the Windows 9x system.
All is not lost. What you cannot access via Network Neighborhood you can access by Mapping a Network Drive in Windows 9x. In Windows' 9x Windows Explorer, you will find the option. In order to Map the Network Drive, you will need to configure the following :
1. First, make sure both your computers are connected to the network and are on the same Workgroup. Typically the default Workgroup's name is Workgroup.
2. Second, you need to know the name of the Windows 7/8 computer or its static IP address.
3. You will need to share a folder containing your CD images on your Windows 7/8 computer. You should add Everyone to the group or user names that will have permission to view the shared folder. You also should limit Everyone's permissions to List folder contents and Read. There is no reason for Full control, Modify or Write access for a folder containing only CD Images.
4. Let's say the name of your shared folder is CD Images and the System Name is WINDOWS8PC. In the Path box under Windows 9x's Map Network Drive, you would enter \\WINDOWS8PC\CD Images. Set a drive letter that will not conflict with your physical and virtual drives and that should be all you need to now access your CD images without having to copy them to your Windows 9x hard drive.
As far as virtual drive tools go, I have always preferred Daemon Tools. The last version of Daemon Tools with Windows 9x support was 3.4.7. It is easy enough to find on oldapps.com. This version of Daemon Tools is sufficiently advanced to emulate most CD protections like Safedisc, SecuROM, Laserlock, and RPMS. It can mount four virtual CD drives. Unfortunately, it does not allow you to create a swaplist which you can switch disc images with the press of a key combination. Obviously, if you need to run a DOS game in real mode DOS, virtual drive tools will not work.
One limitation of using CD disc images instead of the physical CDs is that Redbook CD audio support may be hit or miss. Daemon Tools will play CD audio from DOS games but not Windows games. Fortunately there are more DOS games with CD audio than Windows games, but the number for the latter is not insignificant.