Windows refers to each HardDisk (more correctly, each Partition) by 'drive letters'. A and B are reserved for removable disks, so you get C - Z: 24 letters, 24 possible drives.
Not a problem, you say? I couldn't possibily fit 24 hard disks in my computer. Well, what if you want to keep things separate from one another? What if you want to slice three large hard discs into 8 small chunks? What if you connect to lots of network shares (which also need to be given a drive letter if you want Legacy software to support them?)
NTFS 5, introduced in Windows 2000, allowed 'mounting' of NTFS volumes (a 'volume' is a FileSystem), anywhere on your system. Technically, seeing as Windows refers to the system root almost always as the variable %systemroot%, you could have a system without any drive letters at all; but it seems very unlikely.
The new WinFs that's being introduced with Longhorn, the new upcoming version of Windows, will apparently be doing away with drive letters completely.
Drive letters are an idea whos time has passed.