A family tree is the record of all your families that ever lived in the house in both Virtual Families and Virtual Families 2 generation by generation. It shows you the parents, children, and heir (if the generation you are seeing is not the current generation, the heir will have a line from his place in the family tree as a child to another row, and if he/she has a spouse and/or family, they will show along with them). The New Generation button is enabled when a parent dies. The family tree can show up to 30 generations, up to which point you will have to remove the upper layers (older generations) to make room for a new one.
Advantages in Virtual Families 2
At the beginning of the game you are given a run-down, mostly out-of-repair house with many damaged or unfinished room foundations. You will also be given basic, cheap decorations (newer, more modern ones are locked by generation, so you have to start a new generation in order to get those items). In order to repair the rooms and restore the dream house (which belonged to Bill and Margaret once) you will have to take care of your family for a certain number of generations in order to be able to buy these upgrades (meaning, if you have a 7 generation family tree, you can buy most decorations and room upgrades).