If you are RHEV / QEMU KVM user, you probably launched some virtual machines and yeah it is just as easy as couples of clicks. However, did you ever notice the reason why we have to fill in OS Type and Version ? And, actually VM still can boot up even you didnt fill in the exact OS type and Version for your VM.
The reason is that OS type and Version are used to define whether para-virtualized device will be used for the particular VM. Linux para-virtualized driver starts to run on kernel 2.6.25 or later and if you are running with a VM guest based on older kernel, chances that you will not be able to take advantages from it. For e.g. if you have a VM based on CentOS 4 (running with old 2.6.9 kernel) and you selected OS Type as CentOS 4, the VM will be configured to use simulated block device (/dev/sdX) and Intel e1000 emulated network card and these devices are actually not doing any better to paravirtualized device. However, if you start a VM by defining OS type Ubuntu 10.04 (i.e. kernel version 2.6.32 which does come with para-virtualized driver) and then you really load a Ubuntu 10.04 to it, it would recognize the para-virtualized device and make use of para-virtualized driver. In situation like this, your VM will be presented with para-virtualized block device (/dev/vdX) and virtio network card (virtio_nic) which would take full advantages of para-virtualized kernel.