TrueCrypt can on-the-fly encrypt a system partition or entire system drive, i.e. a partition or drive where Windows is installed and from which it boots.
System encryption provides the highest level of security and privacy, because all files, including any temporary files that Windows and applications create on the system partition (typically, without your knowledge or consent), hibernation files, swap files, etc., are always permanently encrypted (even when power supply is suddenly interrupted). Windows also records large amounts of potentially sensitive data, such as the names and locations of files you open, applications you run, etc. All such log files and registry entries are always permanently encrypted too.
System encryption involves pre-boot authentication, which means that anyone who wants to gain access and use the encrypted system, read and write files stored on the system drive, etc., will need to enter the correct password each time before Windows boots (starts). Pre-boot authentication is handled by the TrueCrypt Boot Loader, which resides in the first track of the boot drive and on the TrueCrypt Rescue Disk.
Note that TrueCrypt can encrypt an existing unencrypted system partition/drive in-place while the operating system is running (while the system is being encrypted, you can use your computer as usual without any restrictions). Likewise, a TrueCrypt-encrypted system partition/drive can be decrypted in-place while the operating system is running. You can interrupt the process of encryption or decryption anytime, leave the partition/drive partially unencrypted, restart or shut down the computer, and then resume the process, which will continue from the point it was stopped.
To encrypt a system partition or entire system drive, select System > Encrypt System Partition/Drive and then follow the instructions in the wizard. To decrypt a system partition/drive, select System > Permanently Decrypt System Partition/Drive.
The mode of operation used for system encryption is XTS (see the section Modes of Operation). For further technical details of system encryption, see the section Encryption Scheme in the chapter Technical Details.
Note: By default, Windows 7 and later boot from a special small partition. The partition contains files that are required to boot the system. Windows allows only applications that have administrator privileges to write to the partition (when the system is running). TrueCrypt encrypts the partition only if you choose to encrypt the whole system drive (as opposed to choosing to encrypt only the partition where Windows is installed).
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