How System Restore Works
System Restore automatically tracks changes to your computer and creates restore points before major changes are to occur. To create a restore point, System Restore takes a full snapshot of the registry and some dynamic system files. For a list of what file types are monitored and restored, see the MSDN article, Microsoft Windows XP System Restore.
For example, restore points are created before new device drivers, automatic updates, unsigned drivers, and some
applications are installed. These healthy system checkpoints are created without prompting or intervention from the user the first time the computer is started after Windows XP is installed and, by default, on a daily basis after that. You can also manually create restore points.
When you use System Restore, you can revert to a saved state without losing personal data including Word documents, e-mail settings and messages, and your Internet favorites list. System Restore won't lose any data you have stored in the My Documents, My Pictures, or My Music folders either.