Hi, thanks for the reply.
I have a lot of space on the machine. I don't back up work files on time capsule, only system and application files if my memory serves me correctly. I use a Dropbox folder to save on Mac and auto backup on Dropbox. I access files in Windows via shared a shared folder.
I don't think Time Capsule is setup to back up the virtual machine. Can you tell by the attached image?
Regarding the Virtual Machines - when I was looking for the vmdk file that the original information box showed me, I came across the folder under Documents. There was only one file in the folder and it wasn't quite the same name, but ended in that extension. That was the file I tried to restore via Time Machine. Now the folder is empty.
Optimize Mac Storage is not turned on.
Should I try installing an older version of Fusion? I have dmg going back to version 8.5, then 10 (I think 10 was a paid upgrade.)