To extract individual files from a system image backup, you can mount the backup VHD (Virtual Hard Disk) file in Disk Management. Right-click the 'Start' button, select 'Disk Management', then 'Action', and 'Attach VHD'. Navigate to your backup location, select the VHD file, and attach it. Once mounted, it will appear as a normal drive in 'This PC', from where you can copy files as needed.