I know it is used to "Register or unregister a DLL". But I want more. Why do we need to register a DLL? When should we register a DLL?

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It's used when registering COM components that various applications require.

It will be very rare that you will need to use this yourself, but one common usage is to unregister and then reregister a DLL if you are experiencing problems or need to install a particular version.

Most of the time an application installer will call this behind this scenes.

You can use the Regsvr32 tool (Regsvr32.exe) to register and unregister OLE controls such as DLL or ActiveX Controls (OCX) files that are self-registerable. This may be necessary to troubleshoot some issues with Windows, Microsoft Internet Explorer, or other programs.

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Yep, its just like chrisF said, Here is a KB article from microsoft explaining it as well and Here is a KB article explaining what a DLL is. Think of them as library files for programs on your computer. They hold instructions on how to do different things for different programs. When you register it you are telling your computer that you have these instructions, where there at and programs that say they need them can use them now.

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Re-registering dll's is common to do when fixing many Windows issues including repairing Windows Update when it stops working, see method 2, also see some of the links in "More Information" section

http://support.microsoft.com/kb/943144

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