The hardware version defines the virtual hardware available to the VM that corresponds to the physical hardware available on the host. vSphere 6.7 introduces hardware version 14 and supports VMs created with previous hardware versions. Each hardware version supports at least five major or minor vSphere releases. By default, the compatibility of the VM is given by the host version on which the VM is created, or by the inventory object on which the default VM compatibility is set.

You might be wondering which hardware version to use. This depends on which version of ESXi your environment uses. If you have multiple hosts with different versions, you should choose the correct hardware version to match the lowest version host used in the infrastructure. However, a lower version will have reduced functionality, and a VMware product won't support a VM with a higher hardware version that is configured with a lower version. If your environment runs vSphere 6.7, you should configure the running VM with the highest hardware version available to take advantage of the latest features.

Different VM versions can be created, edited, and run on a host if the host supports that version. Actions on a host are limited, or the VM might not have access to the host if the VM's configured hardware version is higher than the version supported by the host.
The VM hardware versions can be summarized as follows:

The chosen version determines not only the hardware available to the VM but also the supported OS. During the deployment of the VM, the OS supported depends on the hardware version configured.