Setting the policy to Enabled lets the device run virtual machines on ChromeOS. VirtualMachinesAllowed and CrostiniAllowed must be Enabled to use Crostini. Setting the policy to Disabled means the device can't run virtual machines. Changing it to Disabled starts applying the policy to starting new virtual machines, not those already running.
When this policy is not set on a managed device, the device can't run virtual machines. Unmanaged devices can run virtual machines.