Follow the steps below:
1) Select your VM Instance. Go to Settings->Storage
2) Under the storage tree select the default image or "Empty"
(which ever is present)
3) Under the attributes frame, click on the CD image and select "Choose a virtual CD/DVD disk file
"
4) Browse and select the image file(iso or what ever format) from the system
5) Select OK.
Abishek's solution is correct. But the highlighted area in 2nd image could be misleading.