Some of the most common environment variables in Windows systems include %path%, %programfiles%, %systemroot%, and %temp%, though there are many others.
For example, when Windows XP is first installed, the %systemroom% environment variable is set to the directory in which it's installed to. Since the installation directory is something the installer can define, in one computer it might be C:\Windows but in another it may be C:\WinXP.
Continuing with this example, suppose a word processing program is installed on both computers. A number of files need to be installed into the directory that Windows XP is installed in. However, if this can be different from computer to computer, how can the word processing program be sure it's installing the files in the right place?
To prevent a potential problem like this, the word processing program was designed to install to %systemroot%, not C:\Windows. This way, it can be sure that these important files are installed in the same directory as Windows XP, no matter where that might be.