OPen Outlook > Help, search for Archive, and you will find the following info (taken from the Outlook XP helpfile) -
"About backing up or deleting items using AutoArchive
Your Microsoft Outlook mailbox grows as you create and receive items. To keep your mailbox manageable, you need another place to store ? archive ? the old items that are important but not frequently used. You also need a way to automatically move those old items to the archive location and to discard items whose content has expired and is no longer valid. AutoArchive takes care of these processes for you.
AutoArchive is on by default and runs automatically at scheduled intervals, clearing out old and expired items from folders. Old items are those that reach the archiving age you specify, and may include such things as the original e-mail you received with the goals for a project you're assigned to. Expired items are mail and meeting items whose content is no longer valid after a certain date, such as a meeting you had four months ago that still appears on your calendar. Although an expiration date is optional, you can define it at the time you create the item or at a later date. When the item expires, it's unavailable and has a strike-out mark through it.
What AutoArchive does with items
AutoArchive can do one or both of the following for items in a folder: Permanently delete expired items; delete or archive old items to an archive file. The archive file is a special type of data file. The first time AutoArchive runs, Outlook creates the archive file automatically in one of the following locations depending on the operating system you're using:
Windows 2000 ? C:\Documents and Settings\yourusername \Local Settings\Application Data\Microsoft\Outlook\Archive.pst
Windows NT ? C:\winnt\profiles\yourusername\Local Settings\Application Data\Microsoft\Outlook\Archive.pst
Windows 98 ? C:\Windows\Local Settings\Application Data\Microsoft\Outlook\Archive.pst
If you don't see the Local Settings folder, it may be hidden. See Microsoft Windows Help for information about showing hidden folders.
After Outlook archives items for the first time, you can access items in the file directly from Archive Folders in your Outlook Folder List. If you want, you can have separate archive files for individual folders.
When you open Archive Folders, you'll see that Outlook maintains your existing folder structure. If there is a parent folder above the folder you chose to archive, the parent folder is created in the archive file, but items within the parent folder are not archived. In this way, an identical folder structure exists between the archive file and your mailbox.
Folders are left in place after being archived, even if they are empty. You work with the items the same way you work with items in your main mailbox. If you decide you want archived items moved back into your main mailbox, you can import all the items from the archive file into their original folders or into other folders you specify, or you can manually move or copy individual items."
In other words, archived items are 'compacted' to save space, but are still available in the 'archived Items' folders. I use this feature all the time.