
windows Xp uses Advanced encrypting file system technology(EFS) to do this.you can encrypt different files and folders by using this EFS technology.when you encrypting a file you have to give a key to decrypt it.so if some body needed to view your files he has to provide that key to decrypt it.So that gives you the security.if he or she doesn't know your key he or she cant view your encrypted data.
How To Encrypt
Right click the Folder or file which you want to Encrypt-->properties-->General TAB-->Advanced-->select"Encrypt contents o secure the data" check box
but remember you cannot encrypt compressed files from this method.



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