Read the HowTo (command-question mark) in the Help Menu. After reading that, you should have a general gist of what's going on.
Essentially it comes down to about three things:
You need a virtual hard drive -- you can create this in the preferences.
You need a 68k-based machine ROM (either a Mac IIci or a Quadra 900 ROM) that the earlier OSes relied upon. You will have to find this on your own. You can set its path in the preferences under "Emulation."
You need install media. You can use images, and
zap2 previously linked you to
System 7.5.3 install images.
I attached some screenshots of my preferences setup and a five minute setup (on an Intel mac no less.
) -- the boot floppy I'm using is the one linked to in the Help files. Being that the System 7.5.3 images were parts, I converged them into one single image that was mountable. The final screenshot is after the install.