System.dat was first used in Windows 95 and contains part of the Windows registry. The system registry is where all the Windows settings and most of the application and driver settings are stored. It is a very important file and should be left alone, though you could run a registry cleaner and a registry packer and reduce the size of it. Since XP and higher versions of Windows handle the registry more efficiently, it is best in the newer Windows versions to avoid most registry tools (though there is no harm in running a registry packer which does an internal defragmentation of the registry).