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I am really surprised to find that the "Size on disk" for a folder on my machine is way less than the "Size" value. Any idea why this might be?

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Windows can transparently compress files (using a variant of LZ77) before storing them to disk, if using the NTFS filesystem.

In addition, a file can be marked as sparse – if a large part of the file is empty (consists entirely of null bytes), Windows will not store them on disk; it'll just mark the entire part as being a "hole".

In addition, Explorer is not known for its accuracy. See the article Just What Is ‘Size on Disk’? on TechNet.

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It's interesting that Wubi would choose to use eiter sparse or compressed file for the disk image, as it can make disk I/O on the guest OS a bit slower... –  grawity Sep 2 '12 at 19:41
    
Lazer can easily check if compression is being used as any compressed files will be coloured blue in the Explorer directory listing. –  David Marshall Sep 2 '12 at 21:47
    
Is that colouring on by default? –  grawity Sep 2 '12 at 23:02
    
@grawity The default is to use colour for encrypted (green) and NTFS compressed (blue) files on Vista and WIndows 7. I can't remember if the option was off or on by default in XP. The option can be chosen on the View tab of Folder options: Show encrypted or compressed NTFS files in color. –  David Marshall Sep 3 '12 at 12:34

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