Windows 7 handles fragmented data or files quite well, in fact, by default a disk defragmenter task runs on a schedule but some users may still want to perform a manual defrag exercise to improve system performance. The defragmentation tool (defrag.exe) in Windows 7 has several new parameters which you can invoke from a command prompt.
With Windows 7 you can defragment internal and external disk drives, USB drives and Virtual drives but they must be formatted with the NTFS file system and are not network shared (mapped) drives! By default, defragmentation happens automatically every Wednesday at 1:00 A.M. however, if the computer is off at this time, it will start shortly after the next boot up! Also, it detects all drives installed on your system and performs defragmentation on all drives. The cool thing about Windows 7 is that it recognizes SSD drives (solid state drives) too, and disables the defrag operation on them as they do not need it. Microsoft has tweaked the defragmentation algorithm to perform better
Disk fragmentation happens when files are created, deleted and modified over time with the result that if a file needs to increase its size and there is no room adjacent to it, it gets another portion of the disk somewhere else and hence, the file is now in two or more locations on the disk – the file is fragmented! This is basically the behavior of fragmentation and is quite normal to happen on all systems, whereas, heavily used systems will experience higher fragmentation quicker. Highly fragmented file systems will slow down file access times and will put additional stress on the hard drive.