If I make a copy of my Windows VM (.vmwarevm file) on my external HD is that sufficient to back up my VM. i.e. - I could just move that file back to my "Virtual Machines" folder if necessary and go from there?
yes, so that you can use your virtual machine from backup
Yep, with the caveat that this doesn't work for Boot Camp virtual machines (since the data's actually in the Boot Camp partition, not the vmdk).
I am not sure, perhaps you folks can correct me. If the user copies the data to NTFS or FAT file system, wont that messup the vmdk file ?
If the user copies the data to NTFS or FAT file system, wont that messup the vmdk file ?
NTFS shouldn't have a limit, except that OS X can't write to NTFS by default. FAT has a 4GB file limit (and will corrupt a virtual disk if it's larger), but this is a general limitation, not specific to Fusion. You can get around the 4GB limit by using a split disk, which slices the virtual disk up into 2GB chunks, but this isn't as simple as clicking a button.