This feature is part of the Shadow Copy feature in Windows Vista. This is a really helpful feature that has saved me numerous times!   It essentially makes incremental back-ups of your work - so if you accidentally delete content, you can find it again and recover it with a single click.  Anyone who has modified a document and clicked "save" instead of "save as" will appreciate Previous Versions!

Video: Windows Vista Demo: Previous Versions

Source:→ Windows Experience Blog