Windows Live Folders is the front end view for what is to become Live Drive (note, there’s no Windows to prefix this, such as Live Search and Live Maps), which is a central storage system for your files and important documents. Using Windows Live ID, you can sign in and upload/download and modify your files, whilst allowing only yourself to view certain files and letting others including the world view others.

Personal folders include files and folders which is only for you and your eyes only. You can access this by signing in and accessing your personal documents, backups and contacts.

Shared folders is there to enable you to share documents with other users, friends and family. You’ll need to sign in to access these if you’re a third-party person and if you’re on the access list then you’ll be able to get access to this folder.

Public folders are for everyone, so you can look in anyones public folders.

It’s far from ready yet - I can’t access my files and folders due to a .NET Framework error message (standard problem) so there are a few things to iron out, but in due time the storage will expand to an expected 5/10GB and rumour of a desktop application and a mobile site coming soon.

Note: US users only - however you can work around this - go to Windows Live Account and change your region to “United States”. Wait around 4 hours for this to take affect and you should be well on your way.

Go to Windows Live Folders
More information

Update: Thanks Chris, you’re a good man, you uncovered the story nicely. Big thanks to Chris at LiveSide for making this known to the world. But I’m not linking back to you