IS this how the paging or swap file works?

I read this in a post at a Dragon Naturally Speaking site recently: "Having a permanent paging file speeds the process (of swapping between RAM and HDD) up by using a single contiguous area of your hard drive instead of swapping information all over the drive."

Wouldn't XP have automatically used 1 contiguous area when it was installed--one would certainly think so

Didn't earlier systems (Win 95...Win 98, ME etc.) do that?

It isn't quick and whether it is contigious or not won't make a lot of difference as it will still be an order of magnitude slower than RAM. If the swap file is on a different disk it can make a little difference but adding more RAM is what you want to do if you want a speed increase, RAM is cheap nowadays.