Phase transformations in fluids confined to nanoscale pores, which demonstrate characteristic signatures of first-order phase transitions, have been extensively documented in experiments and molecular simulations. They are characterized by a pronounced hysteresis, which disappears above a certain temperature. A rigorous interpretation of these observations represents a fundamental problem from the point of view of statistical mechanics. Nanoscale systems are essentially small, finite volume systems, in which the concept of the thermodynamic limit is no longer valid, and the statistical ensembles are not equivalent. Here, we present a rigorous approach to the description and molecular simulations of phase transitions and criticality in small confined systems, as illustrated by the example of vapor-liquid transition ( capillary condensation) in spherical cavities. The method is based on the analysis of the canonical ensemble isotherms, which can be generated by the gauge cell Monte Carlo simulation method. The method allows one to define the critical temperature of phase transition, conditions of phase equilibrium, limits of stability of metastable states, and nucleation barriers, which determine hysteretic phase transformations.