This boots directly into the kernel with QEMU's '-kernel' option, and it mounts the host Nix store into the guest via Plan 9 FS. So there is some significant difference vs a full system, e.g. it's not possible to nixos-rebuild the VM. But if you're just testing high-level stuff it's totally fine.

Then there's also a .vmWithBootloader variant which behaves a bit more like a physical machine, IIUC it builds a disk image and boots it via Nixos' actual bootloader.