File backup works on the block cluster level, not on the file level. Windows Volume Snapshot Services tracks the hash values of every block on the disk and compares the hash values with those of blocks already backed up. If the hash value changes, it sends those blocks to the Home Server. Thusly, Home Server knows when only portions of a file has changed, and tracks those changes.What's even more interesting is that Microsoft will not only be offering Home Server preinstalled on systems like HP's MediaSmart server, but also as a bare operating system to system builders, much like it did with Windows Media Center Edition. Home Server's hardware requirements are quite reasonable, as well; the OS requires little more than a 1GHz Pentium 3 processor, 512MB of memory, a bootable DVD drive, an 80GB hard drive, and 100Mbps Ethernet connectivity. In order to interface with a Home Server system, users will need to be running Windows XP SP2 or Vista. Some features may even be Vista-exclusive.
Of course, Microsoft is giving users plenty of time for that Vista upgrade. Home Server is still in beta, and isn't due to be released to manufacturing until June 22. However, if Microsoft makes it easy to roll your own Home Server system, and the automated backups are as slick as they sound, it could very well be worth the wait.