WinFS used to stand for Windows Future Storage, but now is called Windows File System. It is a “true file system” with a compatibility edge that can run on top of the NTFS file system of which Windows Vista needs to have to run. WinFS is similar to “indexing” of which notes down the exact location of every file on the system and makes it easier to search, however WinFS groups different types of files together such as e-mail contacts, Word documents, every type imaginable, then indexes that with keywords.

Update for 24th June 2006
WinFS has been officially decommissioned. There will never be a final WinFS product that will be available for download, instead the product teams are going to salvage what they have and push them into other products instead.