FAT32 and NTFS are file systems created for keeping track of files in the hard disk. A file system is a set of logical constructs that dictate how the space on a disk volume is to be utilized. NTFS is more robust and effective simply because of its advanced features and functionalities. FAT, in general, comprises of overly simplistic data structures, hence making operations more time consuming. The functionalities of NTFS are far more over-powering since it makes use of advanced data structures to improve reliability, disk space utilization and overall performance.
edit Origins of FAT and NTFS
FAT (File Allocation Table) was created by Bill Gates and Marc McDonald in the year 1977. It has undergone many changes since then. The number "32" in FAT32 denotes the number of bits needed to keep track of the files. FAT16 was popular until the arrival of 4GB hard disks. NTFS was born from HPFS file system in collaboration of Microsoft and IBM. NTFS appeared initially for Windows NT platform. Since then it has developed and appears in recent versions of Windows like Vista, XP. Microsoft continues to hold on to NTFS patent.
edit Features of NTFS vs FAT
FAT32 is a fluff-free and simple system that is documented and mainly keeps track of file locations. The simplicity of FAT32 has made it the file system of choice for portable storage mediums like in memory cards, mp3 players and flash players. NTFS file system is more complex and offers multiple enhancements that increase security as well as performance. NTFS file system allows automatic file compression prior to being written freeing up hard disk space and also has disk quotas which allows system administrator to allocate disk space to users.
FAT32 is a derivative of the (FAT) File Allocation Table which supports drives with more than 2GB storage. The largest possible file is 4GB minus 2 bytes. In comparison to its earlier versions, FAT32 uses small clusters and hence uses space more effectively. It can relocate the root folder and use the backup copy of the FAT instead of the default copy. NTFS is much more flexible than FAT32. NTFS does file-level encryption, sparse file support, disk usage quotas, distributed link tracing, file compression, hierarchical storage management etc.
edit Advantages and Disadvantages
FAT32 can be converted to NTFS but it is not so easy to convert NTFS back to FAT. NTFS has great security, file by file compression, quotas and file encryption. If there is more than one operating system on a single computer, it is better to format some volumes as FAT32.
Using multiple operating systems in same computer would make FAT32 a better choice if you want both OSs to read the drive. If there is only Windows OS, NTFS is perfectly fine. Thus in a Windows computer system NTFS is a better option.
edit Video explaining the differences