The FAT16 file system was introduced way back with MS–DOS in 1981, and it’s showing its age. It was designed originally to handle files on a floppy drive, and has had minor modifications over the years so it can handle hard disks, and even file names longer than the original limitation of 8.3 characters, but it’s still the lowest common denominator. The biggest advantage of FAT16 is that it is compatible across a wide variety of operating systems, including Windows 95/98/Me, OS/2, Linux, and some versions of UNIX. The biggest problem of FAT16 is that it has a fixed maximum number of clusters per partition, so as hard disks get bigger and bigger, the size of each cluster has to get larger. In a 2–GB partition, each cluster is 32 kilobytes, meaning that even the smallest file on the partition will take up 32 KB of space. FAT16 also doesn’t support compression, encryption, or advanced security using access control lists.
The FAT32 file system, originally introduced in Windows 95 Service Pack 2, is really just an extension of the original FAT16 file system that provides for a much larger number of clusters per partition. As such, it greatly improves the overall disk utilization when compared to a FAT16 file system. However, FAT32 shares all of the other limitations of FAT16, and adds an important additional limitation—many operating systems that can recognize FAT16 will not work with FAT32—most notably Windows NT, but also Linux and UNIX as well. Now this isn’t a problem if you’re running FAT32 on a Windows XP computer and sharing your drive out to other computers on your network—they don’t need to know (and generally don’t really care) what your underlying file system is.
The NTFS file system, introduced with first version of Windows NT, is a completely different file system from FAT. It provides for greatly increased security, file–by–file compression, quotas, and even encryption. It is the default file system for new installations of Windows XP, and if you’re doing an upgrade from a previous version of Windows, you’ll be asked if you want to convert your existing file systems to NTFS. Don’t worry. If you’ve already upgraded to Windows XP and didn’t do the conversion then, it’s not a problem. You can convert FAT16 or FAT32 volumes to NTFS at any point. Just remember that you can’t easily go back to FAT or FAT32 (without reformatting the drive or partition), not that I think you’ll want to.