But I need Win16. On my older computer (eCS 1.2), I have not this entry.
I have no problems with this entry, if it has got nothing to do with the seamless/DOS window problem.
This "VDM" is started by Panorama because Panorama has to access the real mode BIOS in order to do its video mode selection/management etc.
For that Panorama directly issues the documented real mode DOS video interrupt calls. These calls can only be executed by the VDM.
By the way: DANIS506.ADD (and of course IBMS506.ADD) can start a "VDM" for about the same purpose: in order to offer "INT13" support, it issues real mode DOS interupt13 disk management calls which are then executed by the VDM. By specifying the "/!BIOS" parameter you turn off that support (which for the most part is not necessary as DANIS506.ADD has other and better means to query the same info).
Yes, these started VDMs have nothing to do with seamless or even fullscreen DOS application sessions.