VHD storage capacity is commonly referred to as "maximum VHD size" or "VHD size".
It is different concept though, than the size of a VHD file (space a VHD file occupies in host OS file system).
VHD storage capacity is an equivalent of a physical hard disk size and it is what can actually be increased by "Expand VHD" operation in VHD Utility.
Fig. 1 Structure of a dynamic VHD partially filled with data.
A VHD, dynamic or fixed, is always created with a certain storage capacity,
but a dynamic VHD file size is initially very small (up to several megabytes is needed for VHD metadata, depending on the VHD storage capacity).
Disk sectors, which are not written to yet, are not allocated in advance for dynamic VHDs.
When a dynamic VHD is attached to a virtual machine, it will allocate sectors as needed.
Allocated space size can grow up to a VHD storage capacity.
For a dynamic VHD, file size is a sum of the allocated space size and size of the VHD metadata.
The hard disk capacity reported by Windows Explorer is actually size of a file system partition.
Its size is normally chosen to be close to VHD storage capacity.
Fig. 2 Structure of a dynamic VHD filled with data up to its capacity.
The file system partition size will remain unchanged after VHD storage capacity is increased using VHD Utility, and needs to be increased by means of the guest OS.
Fig. 3 Structure of a dynamic VHD after it was expanded.