When Internet Explorer opens a Web page, it places restrictions on what the page can do, based on the location of the Web ...

"When Internet Explorer opens a Web page, it places restrictions on what the page can do, based on the location of the Web page. For example, Web pages that are located on the Internet might not be able to perform some operations, such as accessing information from the local hard drive.

On the other hand, Web pages on the local computer are in the Local Machine zone, where they have the fewest security restrictions. The Local Machine zone is an Internet Explorer security zone, but is not displayed in the settings for Internet Explorer. The Local Machine zone allows Web content to run with fewer restrictions. Unfortunately, attackers also try to take advantage of the Local Machine zone to elevate their privileges and compromise a computer.

In Windows XP Service Pack 2, all local files and content that is processed by Internet Explorer has the security of the Local Machine zone applied to it. This differs from previous versions, where local content was considered to be secure and had no zone-based security was placed on it.

This feature dramatically restricts HTML in the Local Machine zone and controls running in the Local Machine Zone. This helps to mitigate attacks where the Local Machine zone is used as an attack vector to load malicious code."