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sp_100 gave the correct answer. Here is a shorter answer.
The prefetch folder is a place where Windows XP keeps special prefetch files and the layout.ini file. These files are used for the optimization of Windows XP. They help increase performance substantially for booting and loading of applications by default.
The Task Scheduler service must be running. If it isn't and you delete the contents of that folder your performance will drop significantly. It automatically rebuilds itself after being deleted if the task scheduler service is running.
What does it do? The prefetch files (*.pf) are files that basically tell Windows XP exactly where the files are on the disk for particular file, and where in memory to load them. The result is loading them quicker after the first load because now it knows what files (dll's, ocx's, etc) to grab and where they are.
The layout.ini file in the prefetch folder is used by the disk defragmenter to arrange the files based on XP's internal optimization it performs every 3 days when idle. And for use when a boot defrag is done and a regular degragmentation, helping boost performance.
Never delete the layout.ini file.
Deleting prefetch files if hundreds or thousands of them build up can give a tiny insignificant performance boost only after new prefetch files are made.
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