Fragmentation is created/worsened every day by normal disk activity - saving files, compressing files, deleting files, downloading e-mail, installing applications, etc.
If fragmentation isn't "cleaned up" by a defragmentation method, then files and free space become increasingly fragmented, with files broken into hundreds, thousands or more pieces. Even with today's super-fast CPUs and increased memory capabilities, your users can still be impacted by a primary performance bottleneck - fragmentation.
This results in:
Longer application loading times
Slower file retrieval
Slower file saves
In a multi-tasking environment, this can drastically affect system speed and performance.
According to Microsoft Press: "Disk fragmentation can cause performance problems. You should consider running a defragmentation program on a regular basis."
-From Microsoft Windows NT Server Resource Guide