Hi Trevor,
The technology you can use is called Bitlocker and is built into Windows Vista Ultimate Edition and Windows Vista Enterprise. It is a full volume encryption technology - that is, it encrypts the whole drive and not just individual files. It is fully integrated into Windows and is totally transparent to the user and to applications. To work best, Bitlocker needs a trusted platform module (a hardware encryption chip built into the motherboard). The TPM stores the encryption keys, performs enryption and decryption in hardware and has anti-tamper mechanisms that will lock down the drive should a user attempt to circumvent the encryption.
Windows 7 extends Bitlocker technology onto removable storage such as USB flash drives, this is called Bitlocker-to-go.
If you don't need full volume encryption or don't want to upgrade to Windows Vista Ultimate, then you can use NTFS encryption on individual files or complete folders. Just right click the file or folder, select 'Properties' click the 'Advanced' button and tick the encryption check box. When using this technique, the encryption is only as strong as your Windows password.
Hope this is of help.
Best regards,
Grace