The rom file consists of a piece of software which was on a chip in a real mac. It is needed for the emulator to function.
You need to set the path to the rom file (the old world rom in the download) in the prefs file, like I indicated in my earlier reply. Are you using the SheepShaver GUI to do your settings?
Did you also put the cdenable.sys file in the correc folder in Windows? Without it, SheepShaver for Windows can't read Mac OS formatted CD's. Is the CD you are using a universal install cd? Or is for a specific mac model? If the disk says it is for a specific mac model, then perhaps it's better to look in the macintoshgarden site for a Mac OS 8.5 or 9 cd image (with a yellow/orange number on it) and use that for installation.
Beware, that when you have 64 version of windows, the cdenable.sys file doesn't work and you need to make an image of the disk and add that to the volumes list in the GUI.
It is reading the CD perfectly fine. I installed the .sys file already. I am using the SheepShaver GUI for everything. I just set a path to the rom that was downloaded and it is still doing this weird crash after the splash screen. I don't understand what is going on. I did a google search and someone said something about the image getting blocked? I did not at all understand it. Here's that topic: viewtopic.php?t=7236
Here's my new prefs file: