from Menu: Tools >> Options >> Handheld >> Add Device
Give device name e.g. iTunes
and path e.g G:\iTunes\
that path is now base path of your virtual handheld.
Now you have view for handheld iTunes where you can select the playlist from your library you want to sync with your virtual device (i.e. G:\iTunes path).
1. Check the playlist
2. Change Conversion settings, Audio mode: Specified output format, encoder ALAC, Simultaneous Conversions: set to 1 if you want that order counter in "Audio Filename Rule" to work correctly. If you rely on playlist m3u then it doesn't matter
3. Files, Paths, & More:
Audio Path: if you leave it default, you get folder structure "[Album Artist (auto)]\[Album]\". If you want all the songs in the base folder (g:\iTunes) just clear the "Audio Path"
Audio Filename Rule: If you leave it default, your filenames is kept the same. If you have cleared the "Audio Path" You can use e.g. "padnumber(counter(1,1),3) - [Artist] - [Album] - padnumber([Track #],2) - [Name]" to formulate filename where e.g. "001 - Beatles - Help! - 02 - The Night Before.alac". The first number being order number in your playlist. you can ditch "padnumber(counter(1,1),3) - " part if you want to rely only on created playlist
Playlist Path: MC also creates Playlist for your files. by default it has relative paths. you can also set path to \ and then playlist will be saved on virtual device's base folder where the song files also are. You should be able to use that playlist in iTunes but if not then that order number in filename should help you to sort correctly.
Now press ok to leave from handheld configuration and from action window choose "sync handheld", choose the virtual device you just created. click details to preview that what files are going to be synced and then press sync