Thumbs.db is a file which is created in a folder with Movies or Pictures so that you can view a piece of their content without actualy opening them (you can't see thumbnails unless you have the option to view system files turned on).
         Thumbs.db is there so that you don't need to reload a thumbnail everytime you browse that folder. Sad fact is, is Thumbs.db takes up about 2kb per file and if you edit a lot of stuff its annoying to keep seeing them popping up all over your computer. You can remove thumbs.db quite easily by following these steps:

1. Go to Run in the startmenu
2. Type gpedit.msc
3. Click OK and the Group Policy will open
4. Go to User Configuration/Administrative Template/Windows Components/Windows Explorer
5. Scroll down to the bottom of the long list of stuff that now shows up in the menu on the right. Double-Click on Turn off caching of thumbnail pictures.
6. Click on Enable then Apply, Ok. And now you no longer have this annoying problem.

(Editor's note:
Alternatively or if you use XP Home you can make this change in Control Panel > Folder Options > View > "Do not cache thumbnails"
Disabling thumbnail caching will considerably slow down opening folders in thumbnail view. So if you use thumbnail view a lot, think about it.)