When you save and erase files, one of the objectives of the software that manages your disk is to use as much of contiguous available space as possible. This means that when you erase a file, the space occupied by that file is available for future saves. Over time the disk begins to have lots of little open spaces since every file you save (or delete) has different sizes. The next time you do a save, starting at the beginning of the disk, the disk manager begins to fill the little open spaces with fragments of the file you're saving. This means that, while the disk is efficiently used, from a space perspective, any given file is a collection of fragments spread all over the disk. The disk manager has to maintain a file of the all the locations of the fragments each saved file is made up of. This takes up a lot of time and additional space. When you open the file, the disk manager has to collect and assemble all the pieces of the file. This takes even more time and processor cycles, relatively speaking. So you may in fact see your computer running slower and slower as fragmentation becomes more and more severe.
Defragmentation software does exactly that. Starting at the beginning of the disk, it opens each successive file, collecting all their fragments, and writing the entire file out to a block of open space sufficiently large to contain the entire file in one contiguous block of space. Then all the spaces used by that file are available for rewriting other defragmented files. This continues until all files are re-combined. Then the defragmentation software begins to re-organize the now defragmented files in some predetermined way; typically operating system files are located at the beginning of the disk to take advantage of the fact that the read-write heads of the disk are generally parked at the beginning of the disk so the read time is minimized when you turn you computer on. Also because OS-related files aren't normally modified and re-written by users. Next the Defrag software starts to store Application software, also since those files are also not typically opened, modified and saved by the user. Last the defrag mgr will save your files....photos, songs, word processing files and spreadsheets, etc. Files that you are more likely to open, modify and re-save.