Where does the files to a mounted drive go?

Where does the files to a mounted drive end up? For example, I have a Asus
701 with a 4GB SSD (solid state drive). Not a lot of room, plus writing to
SSD and flash drives reduces how long they will last. EEE PCs also sports a
SD(HC) slot. I have two SDHC 16GB, so I have a lot of space now.

Problem though, lots of programs won't install on a removable drive. And
Windows doesn't like parts of itself on a removable drive either (swap file
for example). So the solution is to use "Mount in the following empty NTFS
folder" option. And I installed many programs through a mounted folder and
things were fine. I also modified where my Settings and Documents folder
lives to the SDHC drive (D.

Well I found a free program that moves Settings and Document folder much
easier. This program is called "EAZ-FIX folder-mover.exe". Although it only
sees fixed drives and in my case, only Drive C. Plus you can't pick the
folder, as it uses \mydata. So no problem, mount drive D (SDHC) in \mydata
and let folder mover do its job.

Well I had 1.3GB free before on Drive C. Now I have only a few MBs. And
Drive D has a lot more room than it did before. But I figure since things
really wouldn't be moved around a lot, just the paths. I searched why 1.3GB
was lost on Drive C and 1.3GB free space was gained on Drive D. I can't find
anything at all. Although Settings and Documents is a lot smaller than it
used to be.

The only thing I can think of, is that Windows XP treats the folder on (C)
and the mounted drive (D) as one of the same. Thus your data could be on
Drive C or Drive D. Is this correct? I just assumed it would always be on
Drive D, but it doesn't appear to be necessarily so.

--
Bill
Asus EEE PC 4GB SSD 2GB SODIMM 16GB SDHC
Windows XP Home SP2