Archive moves your email into a new file according to the dates you specify. The new file will have the same folder structure as your personal folders.
Example: Suppose you want to archive your data by year and you current folder contains emails from 1999-2006.
File > Archive lets you create a new archive so make a new PST file called Archive99, and then allow archive to send all emails dated before 1st January 2000.
Do the same for 2000, 2001, 2002, 2003, 2004, 2005 and keep all your 2006 mail in the current Personal Folders PST file.
Now you have 8 PST files with emails sorted by year and you can have them all load into Outlook when you start the program.
You can use advanced search etc. on all the emails so you have not lost accessibility but it does mean all your files are small and compact. Also all your archives never have new data written to them so they are unlikly to become fragmented or corrupted by use.
Finally if you decide you really only need access to the last 3 years of email you can close all the early archives to make startup of Outlook quicker. You can still load them again if you need them.