Firewall software is used to have control over the (internet) traffic between computers. A firewall makes sure you are not visible on the internet, and if you are, nobody is allowed to enter without your knowledge and specific authorization. This makes your internet connection a lot safer (a firewall is even more important then virus scan software). Windows XP is already provided with a firewall and most of the hardware routers are also provided with a firewall (sometimes you have to activate it).
The question rises: why install firewall software on my Windows system? The answer is easy: with firewall software you aren't only in control of the incoming traffic, but also in control of the outgoing traffic. You are able to control which applications are allowed to go online and which you rather would block internet access. If you get infected by a Trojan or virus which wants to send information (like your passwords...) to the internet, it has to pass the firewall. Access to the internet is blocked for the application, until you have allowed the specific traffic. Resuming: The firewall gives you total control over what goes to and comes from the internet.
Especially if you have a network and/or a fast internet access like cable or DSL, then it's not wise not to use a firewall, especially if you have also installed a wireless router. Most of the times you get a fixed IP address from your internet provider, which means that if you are found as an open computer, you are easily found again, especially when you are always online. Also with a changing IP address, it's wise to use a firewall, to make sure no personal information comes in strange hands.
The internet connection of both Windows XP and Windows Vista is secured with a software based firewall. The Windows XP firewall only verifies the incoming traffic while the Windows Vista firewall verifies both incoming and outgoing traffic. Unfortunately, most applications are allowed to access the internet by default. It would be safer if all application would be blocked until the user has allowed the access to the internet connection. For Windows Vista, blocking applications can be done manually in the sub Administrative Tools in the Control Panel, option Windows Firewall with Advanced Security.
This website decribes a few firewalls which you can download and use for free (I prefer Comodo):
These firewalls run fine besides the Windows firewall.
REMOVE THE PREVIOUSLY USED FIREWALL FIRST
In case of an upgrade or replacement of an already installed firewall (which can be part of a security suite), it is necessary to uninstall the previously used firewall first (with the exception of the default Windows firewall) before installing the new firewall to prevent the risk of boot problems and a bad internet connection! Uninstalling the current firewall can be done by the sub Software (XP)/Programs and Features (Vista) in the Control panel. If the firewall is not uninstalled and Windows no longer boots, Comodo (or the already installed firewall...) can be uninstalled in safe mode (press F8 while booting Windows). If uninstalling is not possible either, try to disable it first with the tool MSCONFIG. If System Restore is active, try to go back to a restore point which was made before the installation of the Comodo firewall (Start, All Programs, Accessories, System Tools, System Restore).
BE CAREFUL WHICH FILES YOU SHARE
I know there are a lot of people who decided to share their whole C: partition. Of course this makes it easy to share information between two or more computers, but without any security all your information (also your passwords....), will be shared with your 'friends' on the internet. Be careful with sharing data, to make them accessible by other computers, with a firewall you can configure extra authorization rules. There is more information about sharing files and folders on the page about creating a (wireless) network.
Comodo Internet Security
Installing Windows in 10 steps
Move personal files
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