I'm following a Microsoft upgrade scenario to perform an in-place upgrade on a VM running Server 2008 R2. I'm trying to upgrade to Server 2012 R2. The document limitations show that "Windows Servers configured to “Boot from VHD” cannot be upgraded using In-place Upgrade." Does this mean that I can't upgrade a VM in this way? Don't all VMs boot from a VHD? I was under the assumption that I could perform the upgrade of the VM after reading other places on Microsoft's website, but it seems to be contradicting info.
They mean a machine that is set to boot from a VHD via the boot menu, not a VM that boot from a harddisk, that is in fact a VHD on disk on the Hypervisor. There is a subtility there.
For more information, Boot to a virtual hard disk: Add a VHDX or VHD to the boot menu