According to the command-line help, this option tells Disk2vhd to install a HAL driver compatible with Virtual PC, if the OS (WinXP/Server 2003) does not support it by default.
-h Fix up the HAL in the VHD to be compatible with Virtual PC (Windows XP and Windows Server 2003 only).
(Note that it specifically refers to Microsoft Virtual PC, not Oracle VirtualBox nor any other virtualization software! It is not needed for Hyper-V, either.)