Screen size problem for Ubuntu virtual machine

Guest Additions is an image of a CD. It needs to be connected as a device to the VM and then launched from inside the Ubuntu guest OS.

From the VirtualBox client menu, choose Devices → Insert guest additions CD image. It will mount into Ubuntu. Once it does, run the installer from that CD/DVD image and reboot the system once it's installed.

That should allow your guest OS to resize itself properly.