I've noticed that separate partitions contain the recovery data.
example:
(C:\) OS
(D:\) Recovery
If you upgrade to a newer version of Windows you might have a folder at the root of your drive called windows.old
http://en.wikipedia.org/wiki/Recovery_disc#Recovery_partitions
OEM system recovery
Most OEM recovery systems for Microsoft Windows based operating systems involve booting from a separate CD-ROM, DVD, or hard drive partition, which in turn launches the recovery environment. After accepting the license agreements for the software and operating system in some cases, the recovery program will usually reformat the hard drive and then begin copying operating system and software files (although some recovery systems, such as the ones utilized by Hewlett-Packard and Gateway do offer a "non-destructive recovery" option which backs up data before reinstalling the OS.[1] After the recovery process is completed, first run configuration such as the Windows Out-Of-Box Experience wizard is run (along with any other additional setup the computer may perform), as it was on the initial startup of the computer. Most recovery systems use specialized software, though Toshiba and Dell licensed Norton Ghost technology for their recovery systems at one point.[2] As of Windows Vista, Dell now uses a Windows Imaging Format based image on a partition along with a tool launched from the Windows Recovery Environment's command prompt.[3]
Some smaller OEM's instead ship sometimes customized Windows installation Disks with the computer in lieu of a dedicated recovery system (sometimes accompanied by "driver discs", or slipstreamed into the installation media), and sometimes alongside one.
Recovery partitions
In recent years, bundled recovery CD-ROMs have become less common, as some OEM's are now utilizing hard drive partitions to store the recovery data. Accessing hard drive based system recovery is usually performed by pressing a specific key combination during or after the computer's POST. Partition based recovery systems are usually faster than their disc based counterparts since the data is directly on the hard drive and no disc swapping is needed. They can also be cheaper for the OEM because they do not need to ship recovery CDs with the computer, adding the price of creating them to the cost of the computer.
However, if the hard drive fails, is fully reformatted, or is replaced, the recovery partition will be lost. An application used to burn bootable recovery CDs or DVDs is sometimes offered in order to allow a backup of the recovery data.[4] For computers with Recovery Partitions, these recovery CDs can also sometimes be ordered directly from the OEM. If they are used to recover the system, the recovery partition can sometimes be recreated with the recovery CD as well.