1. apt-get install dkms
2. Install guest addition. In this case I had the vm guest mount the iso directly. Then I ran VBoxLinuxAdditions.run from the /media directory mounted.
3. I was still having issues at this stage until I found this post. http://askubuntu.com/a/450626/350726
- xdiagnose and ticked all 3 debug options
- restart
- additional drivers and reticked the "using x86 virtualisation solution guest adition module and applied the changes.
- restart
Now it can dynamically resize the resolution. Note that the maximum size of the guest window in the host affects the resolution that a VNC client to the guest can see.