Libraries in Windows 7 and 8 are collections of folders. For example, Music library includes current user's My Music folder and Public Music folder (music files available for all users on the computer). Technically, a library is just a customizable view of multiple folders. You can add your own folders to default Libraries and you can create your own custom, fully personalized Libraries. In Windows 8, Libraries help to add custom folders to File History (aka Previous Versions) for file versioning and backup.
Because Libraries are displayed in Navigation Pane of Windows Explorer by default, you could create one to access a folder quickly while opening or saving files.
The main difference between Libraries in Windows 7 and Windows 8 is that the latter allows specifying a Public Save Location in addition to your own Save Location. You can also set a custom icon for non-default Libraries in Windows 8.
To modify a library, open Windows Explorer by pressing Windows Key+E on your keyboard. Click Libraries in Navigation Pane.
In Windows 8, most of the actions below can be carried out using commands in Manage tab of Ribbon, right after clicking on a Library.
In Libraries, right-click the Library you want to modify and select Properties.
To add a folder to the Library, click Include a folder... button.
Find and open the folder you want to add to the Library, then click Include Folder button.
The folder is now included in the current Library.
Alternatively, you can add any folder to any Library from Windows Explorer. Just right-click a folder, open the Include in library menu and click the Library you want to add the folder to.
If you want to delete a folder from a Library, click Remove button in Library Properties window. This will not delete the folder from hard disk, it will just remove it from the Library. For that reason, neither Windows 7 nor Windows 8 will confirm folder removal.
Alternatively, you can remove a folder by expanding a Library in Navigation Pane of Windows Explorer. Right-click the folder you need to remove and click Remove location from library.
In case you removed some default folder from a default Library and you cannot remember which one, click Restore Defaults button. This will recover all default settings for the Library. Please remember that this will also remove all the non-default folders you might have added to the Library!
Windows 7 and 8 are not limited to the default Libraries - Documents, Music, Pictures and Videos. You can add your own Libraries for anything you like: work documents, holiday trip plans, etc.
To create a new Library, either right-click some empty area in Libraries folder, select New and then click Library.
In Windows 7, you can also click the New library button in the toolbar.
In Windows 8, click the New item button on Home tab of Ribbon and then click Library.
Type a name for the new Library and press Enter key on your keyboard to confirm. You can rename any library later by clicking on it once and then pressing F2 key on your keyboard. Alternatively, right-click on a Library and select Rename from the menu.
As you can guess, the new Library is empty. Double-click to open it and then click Include a folder button to select the first folder to be included in the Library.
As described above, find and select the folder you want to add to your new Library and click Include Folder button.
Next, open Library properties by right-clicking on the Library and selecting Properties from the menu. Add other folders to the Library using Include a folder... button.
In case you have more than one folder in a Library, you can select which folder will be the default location for saving files. For example, if you create a document and you save it to your Library, it will be saved to the folder that is specified as save location.
The current save location has a check mark to the left of its folder name. To select some other folder as default save location, click it and then click the Set save location button.
In Windows 8, you can also set a Public save location for other user accounts. If you don't specify one, both default save locations will be the same.
Select a folder and click Set public save location. The public save location will have a check mark with two persons to the left of its folder name.
To set a folder view (displayed columns, view type, etc) best suited for the library, use the Optimize this library for combo box. For example, General Items is best suited for mixed content - documents, photos, videos. But if you are creating a music library, select Music to see all necessary columns such as Bit rate, Artist, Title, etc.
You can choose to display or hide the Library in Navigation Pane. Enable or disable the Shown in navigation pane attribute as you wish.
In Windows 8, you can even change the icon of your own custom Library (the action is not allowed for default Libraries). To do that, click the Change library icon button.
Select an icon from Change icon dialog and click OK.
Click OK or Apply to save changes.
To delete a custom or a default Library, right-click on it and select Delete. This will move the Library definition to Recycle Bin, but all folders that were included in the Library will stay in tact and no files will be removed. Library is just a view, remember?
Windows will then confirm removal of the Library. Click Yes to move the Library to Recycle Bin.
If you accidentally removed a Library you needed, you can recover it from Recycle Bin as described in the Work with files and folders in Windows article. Or you can undo the action with a simple keyboard shortcut - CTRL+Z.
In case you deleted one or more default Libraries and you cannot use Recycle Bin for some reason, right-click the Libraries item in Windows Explorer Navigation Pane. Click Restore default libraries.