Ah, who hasn't been asked that question by their PC?
A lot of people ask me what happens if you click on "yes". Some of my friends are convinced that the information is immediately checked for credit card details, proof that they have been to porn sites or evidence that they have unlicensed software. Other people are convinced that we ignore it because everyone knows that Microsoft never fix bugs.
Neither of these is true, of course. The answer is here - http://oca.microsoft.com/en/dcp20.asp - but essentially, the data gets some very basic analysis to get a Bucket number and gets entered in to a big database. If the bug is already there then it is tagged as having happened again and the server checks if there is some special action required. Special actions broadly fall into two categories. If we have a fix, the server will tell the computer that reported the fix that we have it. If we are currently investigating the problem, a request for more information may be sent and a form will pop up on the faulting system asking questions that the Dev has specified.
What happens if the crash or hang is not in Microsoft software? Well, that depends. Independant Solution Providers (ISVs from here on) can sign up to get error reports that we get sent on from MS to the ISV. An ISV doesn't have to be a partner or have their software tested by us or have sold a certain number of units. You just have to ask and do a bit of paperwork. This service is free. Let me say that again. This costs you nothing. As Steve B said, "Free is a price point that always works".
The reason that we do this is that we want systems to be stable. Buggy software is not a good thing and we want to help stamp it out. If you feel the same way and you are an ISV, then come join the party at http://www.microsoft.com/whdc/maintain/StartWER.mspx.
This was a public service broadcast brought to you by Mark Long, Microsoft and the letter K.