In Windows 3.1 (as in In the Beginning ...) there was the desktop. This was the main windows. Minimised programs appear as icons on it. You can only store minimised programs on it (which is not really storing). This is where bmp wallpaper is displayed.
Windows 95/NT4 were released. This introduced the taskbar and Start menu. A folder window which has a window style of no border, no titlebar, transparent background, and a few other things (these are all standard properties of a window), then sized to the monitor and set to the desktop folder. When you minimise a window, explorer notices and changes the taskbar then moves the minimised icon off the desktop (it's a bit offscreen).
When IE4 was released, a web page browser was inserted into all folder windows incl the desktop. So the architecture now is original desktop, underneath a web browser hosting a file listing. Non bmp wallpapers are displayed in the web browser. In XP, It only works this way if it needs to to fullfill a function, such as displaying html wallpaper, else it works like 95.
Windows have a Z order. Which window is on top of another. By changing the position of the desktop window it moves the non minimisable apps (and non minimisable is also a window property) to underneath the desktop hiding them.