In earlier versions of Windows, including XP and Vista, you're practically forced to organize all of your files and documents under the Documents folder in your user account. Try to organize your files differently, and you come across so many conflicts with default settings, that you'll throw up your hands and give in.
Windows 7 changes things. Now there's an overall “Libraries” [read here] folder under which your other folders live, such as Personal Documents, Public Documents, Downloads, Music, Pictures, and Videos. You can see a screenshot of it, right.
So how is the new Libraries organization different from Documents? You can easily include folders from other locations in Libraries as well --- and that includes even network locations. So you can include folders from servers, for example. And if you've got a home network you can include folders from other PCs as well. In Windows Explorer, click the library locations button on the right side of the screen, and you'll see the dialog box shown below, which lets you add locations.