Thats where XP keeps all its System Restore information.
It's also a folder that is responsible for "mystery space usage" meaning, because normally you have no rights to view this folder, you also don't have the rights to know how big it is, so when you add the size of all files on the drive it equals to less then the Windows displays (IE, you have a 50Gb drive, 30Gb is used, but when you list all the files you only have 24Gb in files, the other 6Gb is in use by folders the users have no acces to..)