http://www.vmware.com/support/ws55/doc/ws_disk_shrink.html
If you have a virtual disk that grows as data is added, you can shrink it as
described in this section.
Shrinking a virtual disk reclaims unused space in the virtual disk. If there
is empty space in the disk, this process reduces the amount of space the
virtual disk occupies on the host drive.
The maximum benefit occurs when you defragment a virtual disk before you
shrink it.
Shrinking a disk is a two-step process:
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In the first step, called wiping, VMware Tools reclaims all unused portions of disk partitions (such as deleted files) and prepares them for shrinking. Wiping takes place in the guest operating system.
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The second step is the shrinking process itself, which takes place on the host. Workstation reduces the size of the disk's files by the amount of disk space reclaimed in the wipe process.
When a virtual machine is powered on, you shrink its virtual disks from the
VMware Tools control panel.
Launch the control panel.
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Windows guest — double-click the VMware Tools icon in the system tray, or choose Start > Settings > Control Panel, then double-click VMware Tools.
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Linux or FreeBSD guest — become root (su -), then run vmware-toolbox.
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Click the Shrink tab.
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Select the virtual disks you want to shrink, then click Prepare to Shrink
A dialog box tracks the progress of the wiping process.
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Click Yes when VMware Tools finishes wiping the selected disk partitions.
A dialog box tracks the progress of the shrinking process. Shrinking disks may take considerable time.
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Click OK to finish.