http://blogs.msdn.com/oldnewthing/archive/200 … 24/6849530.aspx

MS-DOS served two purposes in Windows 95. […]
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MS-DOS served two purposes in Windows 95.

* It served as the boot loader.
* It acted as the 16-bit legacy device driver layer.

When Windows 95 started up, a customized version of MS-DOS was loaded, and it's that customized version that processed your CONFIG.SYS file, launched COMMAND.COM, which ran your AUTOEXEC.BAT and which eventually ran WIN.COM, which began the process of booting up the VMM, or the 32-bit virtual machine manager.

The customized version of MS-DOS was fully functional as far as the phrase "fully functional" can be applied to MS-DOS in the first place. It had to be, since it was all that was running when you ran Windows 95 in "single MS-DOS application mode."

The WIN.COM program started booting what most people think of as "Windows" proper. It used the copy of MS-DOS to load the virtual machine manager, read the SYSTEM.INI file, load the virtual device drivers, and then it turned off any running copy of EMM386 and switched into protected mode. It's protected mode that is what most people think of as "the real Windows."