is certainly one of them. By partitioning a disk you are creating several virtual hard drives, and if you keep all your data files safely on a separate partition you'll be protecting them in case of a sudden need to format the operating system partition - normally the C drive.
After a format and reinstallation of Windows, there will be all your data, untouched and ready for use.
You can also create a separate partition for Windows to use as virtual memory - often called a swap file. Windows will normally create such an area on the C drive (or whatever partition it's in), and manage the space itself - using more space or less, depending on what it's doing at the time. You can improve the efficiency of this process by nominating a separate partition as the swap file area.
There's also an advantage in file management and data security terms - it's easy to use different partitions for different purposes. In my case I have a large hard drive with several big partitions - one for Windows XP and applications, one for beta software that I'm testing, one for data storage and one for various downloads and bits and pieces of software that I might need occasionally. It all works very well, and the data files are backed up over my office network automatically, every day.