From the Vista Help menu after searching for "make folders private" and then clicking on "Can I protect files or folders with a password"
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Can I protect files or folders with a password?
No, you can't use a password to protect files and folders in Windows. However, some programs that run on Windows do allow you to protect individual files by using a password. For more information, check the Help for the program you are using.
There are other ways to protect your files and folders in Windows. You can encrypt your files, manually specify who can access the folders or files, or hide them. Choose your method based on how secure the folders or files need to be. Encrypting is the most secure, while hiding the folders is the least secure.
Note
The ability to encrypt files and folders is not available in Windows Vista Starter, Windows Vista Home Basic, and Windows Vista Home Premium.
See also
What are permissions?
What is Encrypting File System (EFS)?
So, then I clicked on the EFS link and got this:
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What is Encrypting File System (EFS)?
Encrypting File System (EFS) is a feature of Windows that allows you to store information on your hard disk in an encrypted format. Encryption is the strongest protection that Windows provides to help you keep your information secure.
Some key features of EFS:
Encryption is simple; just select a check box in the file or folder's properties to turn it on.
You have control over who can read the files.
Files are encrypted when you close them, but are automatically ready to use when you open them.
If you change your mind about having a file encrypted, clear the check box in the file's properties.
Note
EFS is not fully supported on Windows Vista Starter, Windows Vista Home Basic, and Windows Vista Home Premium. For those editions of Windows, if you have the encryption key or certificate, you can do the following:
Decrypt files by running Cipher.exe in the Command Prompt window (advanced users)
Modify an encrypted file
Copy an encrypted file as decrypted to a hard disk on your computer
Import EFS certificates and keys
Back up EFS certificates and keys by running Cipher.exe in the Command prompt window (advanced users)
See also
What is encryption?