TrueCrypt is a software system for establishing and maintaining an on-the-fly-encrypted volume (data storage device). On-the-fly encryption means that data are automatically encrypted or decrypted right before they are loaded or saved, without any user intervention. No data stored on an encrypted volume can be read (decrypted) without using the correct password/keyfile(s) or correct encryption keys. Entire file system is encrypted (e.g.., file names, folder names, contents of every file, free space, meta data, etc).
There is a huge document in place for the kind of algorithms used here (yeah, there are multiple algos from which the geek in you can choose which one to use from), but I'll just provide a short account of what needs to be done for 'true-cryping' your data.
1. The entire process begins by first creating a TrueCrypt volume, which is password protected and the encryption algorithm can be as wierd as .. trying to move your mouse in a random manner, the more random the movement of the mouse, the better the encryption!
2. The truecrypt volume created can then be mounted onto one of the various virtual drives that would be listed in the Truecrypt software system list.
3. After mounting, the data can then be moved/copied to this virtual drive and voila.. it gets encrypted.
Well, might sound pretty complicated, but here comes the best part. TrueCrypt, in the huge document also specifies other tricks in a pretty exhaustive manner. These things include stuff like how to encrypt data in the form of a hidden volume within the TrueCrypt volume, so that even if someone forces you to reveal the password he/she couldn't even get to know that such data exists! Difficult to describe the 105 page document in a jist here, but folks who do store some real sensitive data can use it. As I said, its indeed for free.
Pros - A very complete tool, with no loose ends in implementation and niether in the documentation. Features like the 'hidden volume' fundamental being given away for free, choosing the algo to your liking, interesting encrypting ways.
Cons - A bit complicated, not as simple as just providing a password to (un)lock the document, data.
Overall, its a brilliant tool, although a touch complicated, but am sure once you get a feel of it, there won't be any problems further. Moreover, even using the tool won't be a problem coz of the exhaustive documentation provided which is very systematic and to the point.