Behind its steely silver-framed window, iTunes has a very precise system for keeping your music, movies, and everything else you've added organized. Inside its own iTunes folder on your hard drive (which, unless you've moved it, is in My Documents→My Music→iTunes [Home→Music→iTunes]), the program stores all your files and song information. (If you're running Windows Vista, your iTunes folder is at User→<username>→Music→iTunes.)
Inside this iTunes folder is your iTunes Library file, a database that contains the names of all the songs, playlists, videos, and other content you've added to iTunes. Be very careful not to move or delete this file if you happen to be poking around in the iTunes folder. If iTunes can't find its Library file, it gives a little sigh and just creates a new one—a new one which doesn't have a record of all your songs and other media goodies.
Even if you accidentally delete the Library file, your music is still on the computer—even if iTunes doesn't know it. That's because all the song files are actually stored in the iTunes Music folder, which is also inside the main iTunes folder. You may lose your custom playlist if your Library file goes missing, but you can always add the music files back (File→“Add to Library”) and recreate your library.