What is 'Windows.old'?
If you haven't already installed Windows 7 on your XP or Vista computer, check to make sure your computer can handle Windows 7 by using the Windows 7 Upgrade Advisor.
Once you complete the upgrade, you may notice that your hard drive is much fuller than before and now you need to install your programs, but you don't have enough room.
What's going on? This is because Microsoft in their infinite wisdom has saved a lot of your stuff in a folder named 'Windows.old'.
In the event you forgot to save some stuff to an external drive before upgrading, Microsoft has your back. Most if not all of your stuff may be in Windows.old.
Look at this page on Microsoft's site that explains how to retrieve your files.
Of course if your formatted your drive before you installed Windows 7, your stuff is gone and there is no Windows.old anywhere to be found.
Once you have all your stuff back you can safely remove the Windows.old and regain all of the space on your drive so you can install your programs (and save more stuff).
It is highly recommended that you run the disk defrag program in Windows 7 after removing Windows.old.