The middle window, shown above, lists all your hard drives eligible for defragmentation. Left-click any drive in the list to highlight it, then click "Analyze disk" at the bottom to determine if it needs to be defragmented (fragmentation is shown in the "Last Run" column). Microsoft recommends defragmenting any disk that has more than 10% fragmentation.
One of the advantages of Windows 7's defragmenter is that it can defragment multiple hard drives simultaneously. In previous versions, one drive had to be defragged before another one could be. Now, drives can be defragged in parallel, i.e. at the same time. That can be a big time-saver if you have, for example, an internal hard drive, external drive and a USB drive and they all need to be defragged.