Microsoft Knowledge Base Article 304040 contains the following summary and introduction:

SUMMARY

With Microsoft Windows XP, you can share files and documents with other users on your computer and with other users on a network. There is a new user interface (UI) named Simple File Sharing and a new Shared Documents feature. This article describes the new file sharing UI and discusses the following topics:
How to turn Simple File Sharing on and off.
How to manage and configure levels of access to shares and files.
Guidelines for file sharing in Windows XP.
How to troubleshoot file sharing problems.
Windows XP Home Edition-based computers always have Simple File Sharing enabled.

INTRODUCTION

On a Windows XP-based computer, you can share files among both local and remote users. Local users log on to your computer directly through their own accounts or through a Guest account. Remote users connect to your computer over the network and access the files that are shared on your computer.

You can access the Simple File Sharing UI by viewing a folder's properties. Through the Simple File Sharing UI, you can configure both share and NTFS file system permissions at the folder level. These permissions apply to the folder, all the files in that folder, child folders, and all the files in the child folders. Files and folders that are created in or copied to a folder inherit the permissions that are defined for their parent folder. This article describes how to configure access to your files based on permission levels. Some of the information that this article contains about these permission levels is not documented in the operating system files or the Help file.