When a hard disk is formatted it creates lots of small areas for holding data.
All your data is stored in these small areas.
A large single file may be too large to hold in one small area, so it is split up into smaller parts and spread across a number of these small areas (even though you still see it as just one file).
A file may be split up and parts stored in different places all over the disk (fragmented).
Or a file may be split up but held in a logical order (contiguous).
It is best if a file is contiguous as Windows can load it quicker as the hard disk will not need to hunt all over the disk for it.
But in real terms a user would hardly notice much difference between a file being fragmented or contiguous.
When you defragment a hard disk Windows tries to tidy up a disk my taking all the fragmented files and making them contiguous.