.dll refers to dynamic link library, basically windows needs these files to enable it to run certain progs.
If you look at this link click here, it explains what msvcr70.dll is and why you need it. As msvcr70.dll is not loaded with a windows installation, chances are that some prog you have installed relies on it, prob according to the link, a .net prog.
Just done a search of my pc and I have 3158 .dll files, most are loaded into c:\windows\system (or system32) though others are dotted throughout my pc folders.
Hope this helps.