This video shows setting up a Python virtual environment in VS Code on Windows. Create a virtual environment using `py -3 -m venv venv`. Then, in VS Code, select the virtual environment's Python interpreter (found in `venv/Scripts/python.exe`) and activate it in the terminal using `venv\Scripts\activate.bat`. This isolates project dependencies. This segment details the crucial steps to configure VS Code to use the Python interpreter within the newly created virtual environment. It guides viewers through the command palette, selecting the interpreter path, navigating the project directory structure to locate the correct Python executable (`venv/Scripts/python.exe`), and verifying the successful update in the VS Code interface. The explanation ensures the interpreter is correctly set for the project, enabling isolated package installations and preventing conflicts with globally installed packages.