Using VST plugin?

Can someone explain to me how exactly this is supposed to work?
I don’t really get it because first of all the ctrlr dll isn’t recognized in Cubase (5.5) but secondly I don’t really understand what kind of plugin this would be, because if it were a real VST instrument you wouldn’t be able to record the real instrument (because VSTis are inside of the sequencer) so is it kind of a Midi plugin?