lengthy post on the Engineering Windows 7 blog explaining how fragmentation occurs, how modern hardware like high capacity hard drives changes things, and how Windows 7 differs from Windows Vista and Windows XP when it comes to defragging your hard drive.
In a nutshell, Windows 7 features a new graphical user interface for the Windows disk defragmentor that provides uers with more control over defrag jobs and shows more detailed information about each job. You can also safely terminate the defragmenting process any time without any adverse effects.
Like Windows Vista, Windows 7 allows for scheduled defragmentation jobs. In fact, defragmentation is automatically scheduled by default, which means that most users will never have to adjust any settings in order to optimize disk performance. Well, assuming you don't turn off your computer at night, anyway. By default, the defragmenter is set to run at 1:00AM.
Windows 7 also adds the ability to defragment multiple volumes simultaneously, and the operating system will automatically disable defragmentation on any solid state disk since there's no need to defragment flash memory and continued write access to the disk could actually shorten its life.