Essentially create a virtual disk (which can be located in a file on your HD or on a separate device such as a flash drive). The data on the disk are automatically encrypted as they are read or write.
The program encrypts all information stored on the disk (the file names, folder structure, even the amount of free space), and to decrypt must use the password or key file. Files and folders are copied to disk TrueCrypt just as on any mounted to the system disk. Encryption is in RAM, but it does not mean that encrypted/decrypted file must be placed completely in RAM, as TrueCrypt decrypts the file as it is being read and has no special requirements to the RAM.
Features of Truecrypt:
-Entire partition encryption such as USB flash drive or HDD.
-Virtual disk within a file and stores files in it like a read disk.
-Encryption is automatic, real-time (on-the-fly) and transparent.
-Parallelization and pipelining allow data to be read and written fast, as if the drive was not encrypted.
-Provides plausible deniability, in case an adversary forces you to reveal the password.
-Encryption algorithms: AES-256, Serpent, and Twofish.