How does restore points work?

The System Restore function in Windows XP is one defense line against file corruption or loss but it is far from a complete backup. System Restore monitors certain parts of Windows XP known as the "system state". The system state includes the Registry, COM+ Class Registration database, boot files, and certain file types. The file types that are monitored are listed at this Microsoft page and include EXE and DLL files. If you can read XML, you can also see the list on your computer at %windir%\system32\restore\Filelist.xml. Note, however, that these file types are not necessarily protected if they are placed directly on the desktop.

Periodically (usually once a day) System Restore takes a snapshot of the system state and stores the various files in a condensed form. At some later time, the system can then be rolled back to a previous system state. By no means, however, does that include all your files.

By default, System Restore will set aside 12% of each of your drives for saving restore points. Although you may have a big hard drive and no need of the space, a lot of extra restore points can slow down processes such as virus checking, disk defragmenting, and other procedures. I discuss the details of the procedure for changing the amount of space that is reserved on another page. Also discussed there is how to turn off System Restore for drives or partitions that do not need to be monitored. If you use a separate drive for a dual-boot system or if you have partitions for data, turn off System Restore for these volumes. There is no benefit from monitoring non-system or non-XP files.