source: http://www.ubuntugeek.com/howto-install-vmware-tools-in-ubuntu.html

We have already discussed about VMware server setup in gutsy.Now It is very important that you install VMware Tools in the guest operating system.With the VMware Tools SVGA driver installed, Workstation supports significantly faster graphics performance.The VMware Tools package provides support required for shared folders and for drag and drop operations.

Other tools in the package support synchronization of time in the guest operating system with time on the host, automatic grabbing and releasing of the mouse cursor, copying and pasting between guest and host, and improved mouse performance in some guest operating systems.

Click on VM in the top menu of the VMware Server console and select Install VMware Tools.

 Now you should be able see the following screen here click on install

 Now you should see similar to the following screen on your desktop

 First copy the VMware Tools from the mounted iso to the temporary folder

cp /media/cdrom/VMwareTools-1.0.3-44356.tar.gz /tmp/

Afterwards switch to the temporary folder and unpack the VMware Tools:

cd /tmp/

tar xvfz VMwareTools-1.0.3-44356.tar.gz

Next switch to the folder with the unpacked files and execute the installer:

cd vmware-tools-distrib/

sudo ./vmware-install.pl

Now you will be asked a few questions relating to installation paths etc. Choose the default value every time (simply hit enter).

 After the installation/configuration finished you have to start the VMware Tools:

vmware-toolbox &

Once it opens you should be able to see similar to the following screen

Vmware tools version details

Note: If you close the VMware Tools window, the VMware Tools will be disabled immediately.