Microsoft Private Folder created a single folder on the user's desktop which, when opened for the first time, prompted the user to assign it a password. the user had to re-enter the same password to re access the folder . Microsoft Private Folder is a useful tool for you to protect your private data when your administrator or other people share your PC or account. It is assumed that Private Folder used strong encryption with a key based solely on this password to secure the data contained in the folder. This is in contrast to Microsoft's Encrypting File System, where encryption is tied to a keypair which can be made accessible to IT staff.
Private Folder used a system service called prfldrsvc (display name: Private Folder Service), the function of which is not yet publicly known.
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Remember don't forget the password :-)