Only the important bits below
What is Restore Previous Versions, exactly?
Introduced in Vista and now present in all editions of Windows 7, previous versions are local backups of every data file and folder that changes on your system.
The backups are created automatically and are instantly accessible.
Previous versions do for your standard documents (text files, spreadsheets, photos, whatever) what Windows System Restore does for system files.
The function that creates previous versions is enabled by default and is probably working right now on your PC, whether you’ve ever used the previous-versions feature or not.
As Microsoft’s FAQ puts it: “You can use previous versions to restore files and folders that you accidentally modified or deleted, or that were damaged.
Depending on the type of file or folder, you can open, save to a different location, or restore a previous version.”
Exploring your previous-version files
By default, Vista and Win7 make copies of changed folders and files at least once a day.
But you can adjust the schedule at will.
To start, open Windows Explorer, right-click My Documents (or wherever), and select Restore previous versions
The rest is logical!!!
An important point is: right clicking a filename and using restore previous version only works if you have not moved it. Using the above method allows recovery from its original location.