http://mac.appstorm.net/how-to/os-x/creating-disk-images-with-disk-utility/
.dmg and .cdr formats are accepted by parallels also.
After creating the image you can mount it on your desktop and add files to it. In order for windows to read it use the format: MS-DOS (FAT).
PS: Might not be as simple as I expected, and may require a few tries to get a image windows 98 can read.
Last edited by a moderator: Oct 4, 2011