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It is used by backup programs to determine if a file has been modified since last backed up.
When a backup is done, the backup program clears the archive flag. When a file is modified in any way, the archive flag is set. When an incremental backup is run, it only backs up files where the archive flag is set, (ie, only files modified since the last backup). This allows for incremental backups where only files modified since the last full backup are copied, greatly reducing the amount of time required to run the backup.
Google "file attributes" for more complete details.
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