Fragmentation occurs when the operating system cannot or will not allocate enough contiguous space to store a complete file as a unit, but instead puts parts of it in gaps between other files (usually those gaps exist because they formerly held a file that the operating system has subsequently deleted or because the operating system allocated excess space for the file in the first place). Larger files and greater numbers of files also contribute to fragmentation and consequent performance loss.
Heavy usage of P2P programs (LimeWire, BitTorrent) can heavily contribute to fragmentation as they do not downloads in parts instead of being processed as a flat file.
The screenshot shown is from a heavy user of P2P who hadn’t used the Defrag utility.