A Generation 1 VM is a Microsoft Hyper-V virtual machine that uses the original Hyper-V BIOS-based architecture.
An example of retroactive nomenclature, the term Generation 1 VM came into use only after Microsoft introduced the Generation 2 VM format in Windows Server 2012 R2; prior to this release there was only one type of Hyper-V VM.
Administrators using Windows Server 2012 R2 or later operating systems have the option of creating either type of VM. One of the primary differences between the two formats is that a Generation 1 VM was designed to closely emulate a physical machine, whereas a Generation 2 VM is hypervisor aware, and does not rely on synthetic or emulated hardware. For this reason, Generation 2 VMs often offer improved performance, such as faster boot times, than Generation 1 VMs.
However, there are several reasons why administrators may choose to continue using Generation 1 VMs even in Windows Server 2012 R2 virtualization environments. For starters, VM generations cannot be changed once the VM is created. Therefore, if there's a chance a VM may need to be migrated to a server running an older version of Windows Server, then a Generation 1 VM would allow for this flexibility. Generation 1 VMs can access a physical DVD drive, whereas Generation 2 VMs cannot. Generation 2 VMs also only support Windows Server 2012 and later and 64-bit versions of Windows 8 and later as guest operating systems. Generation 1 VMs use the original VHD format, while Generation 2 VMs use the newer VHDX file format.