The first time you boot the VM, you'll be presented with a dialog asking you what to do with the CD drive. Click the folder icon (pictured in the screenshot above) and select the ISO file you downloaded earlier. Boot it up and install Linux as you normally would.
Once it's finished, you may notice that things are running very slowly. VirtualBox doesn't work well with the 3d-accelerated X11 server, so the first thing you'll often have to do is log out and, on Ubuntu at least, fire up a console and install the gnome-session-fallback package. In order for the VM to work well, you should stay away from the 3d-driven user interfaces. Log out and change your session type to "Gnome Fallback (No Effects)". Once you log in the GUI should feel much more responsive.
One final thing is to install the VirtualBox guest tools. This comes in two packages (again, on Ubuntu, your distro might be different), virtualbox-guest-x11 and virtualbox-guest-utils. Install these packages and reboot (you could get away with not rebooting, but certain kernel modules need to be loaded before some services are started, it's just easier to reboot).