There are five directories that Windows uses internally. The contents of those directories are a mystery to most.

• Documents and Settings
  This folder is used to hold the configurations for each user who accesses the system. In Windows NT, this information was stored in the \Windows\profiles folder.

• Program Files
  This folder is all the executable programs on a system. It is the default installation location for a Windows applications.

• Common Files
  All the files shared with the Microsoft applications.

• ComPlus Applications
  COM+ is an improvement to the Component Object Model (COM) model. It attempts to integrated services and features, so it is easier for developers to create and use software components in any language, using any tool.

  If there are no ComPlus applications installed on your XP machine, this folder will be empty.

• Internet Explorer- an Internet browser

• Messenger- the Windows Messenger Service
  These are files for the new Windows Messenger Service (WMS), not the Windows Messenger. The WMS allows messages to move across a network (like when an administrator warns everyone that the network will be shutdown in X minutes. The Windows Messenger is an Instant Messaging program.

• Movie Maker
  A multimedia creation program for WMV files.

• MSN
  MSN is a new Internet connectivity tool from Microsoft that combines Web, e-mail services, and Internet setup services.

• MSN Gaming Zone
  

• NetMeeting
  

• Online Services
  This folder contains files used to establish Internet connectivity. These files enable you to set up Internet access through MSN or to select another available Internet service provider.

• Outlook Express- a simple e-mail application.

• Uninstall Information
  This hidden folder contains files and information for uninstall services.

• Windows Media Player
  A multi-media player for different audio formats

• Windows NT
  Any applications that have been ported over from other Windows operating systems (such as Pinball). This folder has empty folders in it if the ported components were not selected during installation.

• Windows Update
  all the files used by the Windows Update Service

• Xerox
  

• System Volume Information
This folder stores all disk permission and security information.
• Recycler
This is not a true folder; instead, it is the system-controlled temporary repository for deleted files. You can access its contents by launching the Recycle Bin tool from the desktop.Note that this folder does not appear until a file is deleted.
• Windows
This is the main folder containing all the Windows XP system files, and the default folder for Windows XP. The root of the boot partition is also the default location for pagefile.sys, which is the page file the Windows NT virtual memory system uses.
It contains a large subfolder hierarchy but it has very few files.

• Addins
  ActiveX controls files.

• AppPatch
  Contains application compatibility .
  dlls and Appfix packages.

• Config
  Contains configuration .idf files used by the MIDI sound system. Depending on system configuration, this folder might be empty.

• Connection Wizard
  Files used for estishing Internet connectivity. Can be an empty folder.

• CSC.
  The Client Side Cache is where contents of mapped network drives are cached so that the contents of these drives will be availe offline. By default, this folder contains empty folders.

• Cursors.
  Contains static and animated cursor files.> You can use these files by configuring the Mouse applet.

• Debug
  Contains log files that can be used to debug network connectivity and other setup functions.

• Downloaded Program Files
  Contains ActiveX controls and Java applets that have been downloaded from the Internet.

• Driver Cache
  Contains a platform subdirectory and a copy of the driver.cab file so that new devices can be easily insted without needing the Windows XP CD. Might contain SP1. cab if insting an integrated copy of the operating system.

• Fonts
  Contains insted fonts.

• Help
  Contains the help files used by the Windows XP Help system and its native utilities.

• Ime
  Files to support the Input Method Editor. Provides guage support for Windows XP.

• Inf
  Contains the .inf (system information) files used to inst software components. This is a hidden folder.

• Inster
  The location for temporary files used by the Windows Inster program. This is a hidden folder.

• Java
  Folder structure for Java files.

• Media
  Contains media files (sound and video) used by sound themes.

• Msagent
  Microsoft agent files, which are software services that support using animated characters in the Windows interface to assist users in manipulating the operating system.

• Msapps
  Contains files for backward-compatibility with applications that use shared components.

• Mui
  MUI (Multilingual-User Interface) Packs give companies flexibility in making guage options availe to users.

• Offline Web Pages
  Any Web pages designated as offline accessible are stored in this folder, along with any images and other files that go with it.

• PCHEALTH
  Contains files and subfolders to support the Microsoft Help Center Service. These files support the Windows XP Help services, including features such as Remote Desktop Assistance.

• Prefetch
  

  . Contains the files that XP is tracking for prefetch execution. Caching frequently used files decreases startup time for applications and optimizes XP performance.

• Registration
  Contains files that support COM+ applications.

• Repair
  Contains backup copies of the permanent Registry hives. The NTBackup program updates this directory with the System State option.

• Resources
  Contains files to support the user's shell interface.

• Security
  Contains subfolders and files related to security.Includes log files that define the default security applied during setup and templates for assigning new security privileges.

• Srchasst
  

  . Contains files and subfolders for Search Companion, the updated search assistant included with XP. Includes files to support an indexing function that improves search performance.

• System
  Contains 16-bit versions of protected and real mode drivers and .dll files used by applications. These files are provided for backward-compatibility with older applications. Additio 16-bit driver files can be stored in this folder.

• System32.
  Contains the core operating system files and subfolder trees.

  • Drivers
    Contains driver files (.sys); the \etc folder contains sample copies of the TCP/IP text-based configuration files, such as Hosts and LMHosts files.

  • Export
    This is an empty folder.

  • Icsxml
    Contains files for Univeral Plug and Play.

  • IME
    Contains files for Input Method Editors.

  • Intsrv
    Contains files used by the World Wide Web service. This folder is empty.

  • Macromedia
    Contains a subfolder with the Shockwave Flash .ocx file.

  • MsDTC
    Contains Microsoft Distributed Transaction Coordinator files that control transaction output and message delivery between two different applications or processes.

  • MUI
    Contains Multilingual-User Interface files that are created by applications, such as Service Pack 1.

  • Os2
    Contains drivers used by the OS/2 subsystem.

  • NPP
    Contains files to support collecting network traffic from an XP PC by a Network Monitor server.

  • Oobe
    Contains "Out of Box Experience" files that prompt users to complete product activation and registration and to create a new user other than Administrator. This feature is activated only after setup.

  • Ras
    Contains the default scripts used by Dial-Up Networking.

  • Restore
    Contains a list of files to be monitored and saved to an alternative location in case of file corruption. The System Restore service takes snapshots of the XP system periodically to enable the system to be restored from a previous set of data. This folder also contains the machine GUID.

  • Setup
    Contains setup files for additional services, such as FrontPage Server Extensions and Microsoft Fax.

  • ShellExt
    By default, this folder is empty.

  • Spool
    Used by the printing system to store spooled print jobs and related files. The Printers subfolder is used to store spool files. The other folders found here vary based on printer drivers and configuration.

  • USMT
    USMT stands for User State Migration Tool. This folder contains files to support both USMT and the File and Settings Transfer Wizard. Both tools enable user files and settings to be copied to another PC.

  • WBEM
    Used by Web Based Enterprise Management to store its data and executable files and utilities. The Microsoft implementation of WBEM is the Windows Management Instrumentation (WMI) Service. With WMI, programmers can create applications that control network devices, using the same commands regardless of platform.

  • Wins
    Contains files to support the Windows Internet Name Service (WINS). This folder is empty.

• Tasks
  scheduled tasks that run without operator intervention.

• Temp
  Contains any temporary files used by the system and applications.

• Twain_32
  Contains files to support Twain technology, eling a scer document to be inserted into a file.

• Web
  Contains files and subfolders to support Internet printing and document access.

• WinSxS
  A folder to store the shared components of side-by-side applications. These can be multiple versions of the same application or the same assembly.

source: The Windows XP Layout; 2003 by Stu Sjouwerman (Que)