A drive letter designates which drive contains the file. In a file's full name, the drive letter is followed by a colon. Drive letters A: and B: are normally reserved for the floppy disk drives (now largely obsolete).
Normally, drive C: is the first (or only) hard disk drive. Most current operating systems can partition a large hard disk into multiple logical drives or volumes that are usually called C:, D:, E:, etc. Network systems (LANs) give additional drive letters to sections of the network file server drives. In addition, you can access network drives via their UNC (universal naming convention) name (e.g. \\data\vol1\...), without using a drive letter. See File Systems for more details.
Most systems also include optical drives (i.e. CD-ROM, CD-RW, and/or DVD). The optical drive is also assigned a drive letter (or several letters, for changers), typically using letters beyond that used by the last hard disk in the system, but before any network drives.
For example, on a system with a large hard disk you might have A: and B: as floppy drives, C:, D:, and E: as parts of the hard disk, F: as a CD-ROM drive, G: as a DVD drive, and H: and I: as network drives.
Each volume is formatted under a particular file system; see File Systems for details. Additional information about disk files and directories is available under Directories and Subdirectories, File Names, and File Attributes.