Increase resolution of Ubuntu in VirtualBox

Problem

No matter how much video memory you give Ubuntu running in VirtualBox, it runs with a pitifully small resolution like 800x600 or something like that.

Solution

To enable Ubuntu to use larger resolutions, you need to install Guest Additions to it. The instructions to do that are here. After installation, reboot Ubuntu and you will see that Ubuntu resolution will match the window size. To increase the resolution just increase or change the VirtualBox window size by dragging its corner.

Tried with: Ubuntu 12.04, VirtualBox 4.2.4 and Windows 7 Enterprise