Can we create and run a virtual machine that uses RAM only or minimized HDD usage.
That is same as the working concept as that of live CD.
I know It is possible,but still confused,whether it can be implemented.
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If you have sufficient ram, create a large tmpfs ram drive and put your hard drive images there.
Just like a live cd things will be lost when the system crashes or reboots. You will probably need scripts that sync it to a real drive on a regular basis and before shutting down.
Why are you trying to minimize hard drive use? That might help figure out the best solution.
There are several distributions out there that are geared towards this operating model. They typically have a LiveCD to boot from (or boot from USB media) and store things like configuration parameters, home directories, files, etc. on a USB drive. There is no reason why you couldn't run this in a VM just as easily (you wouldn't need a USB drive, just a very small disk partition to store the relevant data).
See http://www.desktoplinux.com/articles/AT8963693541.html for some examples (note, this page is about seven years old and the links on it may not work any more, but you can always search for the distros described).