You cannot boot from USB Floppy so you'll need to make floppy disk images and add a virtual floppy to the virtual machine and then install from the floppy images. I used dd in a Terminal to make the floppy images and the general syntax for the command is as follows:
dd if=/dev/diskN of=msdos622_diskN.img
Where diskN is the number of the disk. On my system the USB Floppy was assigned disk3 (because I have two external HDD's commected to my MacBook Pro at the moment) and using Disk Utility and the Info button I see it's that so the command would look like this:
dd if=/dev/disk3 of=msdos622_disk1.img
And then I'd just change the 1 in msdos622_disk1.img to 2 and then 3 and so on.
Note that you cannot have the floppy disk mounted so if you need to you can use the Unmount button in Disk Utility.
When creating the Virtual Machine you'll select Other for the Operating System: and the MS-DOS for the Version:.
Also note that when running this MS-DOS Virtual Machine one of the Host's processors will run at 100% and even hit the other a little too so IMO it's not practical to run an MS-DOS Virtual Machine in Fusion 3.
Also there is a program floating around called DOSIdle that worked to throttle down the CPU but it doesn't work in Fusion 3 and I can't remember if it ever worked on an Intel Mac in any version of Fusion but it works on a PC using VMware Workstation and MS-DOS.
To add a Floppy to the Virtual Machine click Settings > Other Devices > button (lower left corner) > Add Floppy...
