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Anyway, it sounds like that game requires 1 GB of space on the drive you install it on. Presumably that would be your computer's primary hard drive (a.k.a. hard disk drive, HDD) or solid state drive (a.k.a. SSD) where Steam is installed and where most of your stuff is.
I think he means by physical storage, how much is available on his system. And by virtual storage, he means the limitation the game uses for save files.