I'm not a finance person, but as I understand it, "virtual STEEM supply" is the total supply of Steem when you account for SBD as outstanding debt.

Every SBD is redeemable for $1 worth of STEEM via the blockchain conversion function, so the virtual supply is the total supply of all STEEM already in existence plus the number of STEEM that would need to be printed in order to convert all of the SBDs in existence.

I don't think there's a direct link between value and supply, but yes, if the virtual supply goes down than simple supply & demand mechanisms would suggest that the value of STEEM should go up. It's also notable that when the value of STEEM goes up, the number of STEEM needed to satisfy the SBD debt goes down, so there is a connection in the other direction. By definition, when the value of STEEM goes up, it causes the virtual supply to go down (and the same is true in reverse).