Your disk stores a file's data in one or more chunks of space on the physical disk, regardless of whether the space is contiguous. De-fragging tidies everything up and blocks a program's bits together so that the reader heads don't have to shuttle back and forth to read a whole executable or data file. While this is less of a problem with today's huge hard drives and copious RAM, a slow system can still benefit from de-fragmenting the disk.
Windows 7 comes with a built-in defragger that runs automatically at scheduled intervals. Mine was set by default to run Wednesdays at 1:00 AM, when my PC is usually turned off; so it never got defragged. If you're in a similar boat, you can either change the scheduled defrag, or defrag on demand. Just type "defrag" in the Windows Start Menu search bar, and click on "Disk Defragmenter." The version of the utility is improved in Windows 7, and shows more information about what's happening on your disk than Vista did. The Windows 7 engineering team posted a very in-depth, informative article on the Engineering Windows 7 blog.
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