I recently installed debian-7.8.0-i386-DVD-1.iso on a VirtualBox. It "live booted" just fine and then I followed the install instructions. As far as I can tell it works. ??? I dont know. here is the issue. When I tried to instal from the Add/remove software in the applications. I get a notice to load 'Debian GNU/Linux 7.8.0_Wheezy_- Official i386 DVD Binary-1' in the dvd tray, after it starts to load/install. so what is really going on there? why do I need to use this? how do I get around it. I appreciate the input. Keep in mind I have know idea about how Linux works. First time user.

Just put that DVD (or ISO file; the one you said live booted) and connect it in and then press OK.

how do I do that from the terminal?

here is a screen shot.

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What happens when you press continue?

Well in past I have used old virtualbox. It had menus at top. There it had menu for devices through which you can connect/disconnect the devices like floppy, cdrom, hard disk. Please find such or read it's documentation or wait for anyone with more knowledge comes to help.

that was exatly what I needed to do. thank you for your help