FAT (FAT16 and FAT32) and NTFS are two methods for storing data on a hard drive. The hard drive has to either be formatted using one or the other, or can be converted from one to the other (usually FAT to NTFS) using a system tool.
FAT is basically the same file system that has been used on PCs since the early DOS days, with a number of modifications made to allow it to work with larger hard drives. NTFS was originally developed to work in Windows NT, to support large hard drives from the get-go (up to 16 billion gigabytes per volume!) and to guard against the kinds of errors that routinely wreck FAT volumes. NTFS is just the better choice overall at this point and most computers running Windows are running a version of Windows that can handle it (i.e., Windows 2000 or XP).
If you're using Windows 2000 exclusively, your best bet is to format or convert all drives in your system to NTFS. NTFS allows you to use larger drives, secure directories and files against unauthorized users, has better data-protection technologies, and doesn't succumb to errors or fragmentation as easily as FAT/FAT32. (Note that NTFS drives do get fragmented over time and will need to be defragged, but NTFS has slightly better management of free space to keep fragmentation from becoming as pronounced too soon.) The only time you should bother with FAT32 on a Windows 2000 system is if you are dual-booting between Windows 2000 and Windows 98/Me, or otherwise sharing a hard drive with a system that cannot read NTFS.
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