Actually there are two separate file optimizations going on in Panther.
The first one, is Automatic File Defragmentation. When a file is opened, if it is highly fragmented (ie. 8+ fragments) and it is under 20MB in size, it is defragmented. The file system does this by moving the file to a new location. This only happens on Journaled HFS+ volumes.
The second file optimization process is called "Adaptive Hot File Clustering". Over a period of 60 hours, the File System keeps track of which files are read most frequently (to be a hot-file candidate, a file must be less than 10MB and never written to).
At the end of the period, the "hottest" files (ie. the files that have been read the most times) are moved to the "hot-band" on the disk (which is that part of the disk which is particularly fast given the physical characteristics of the disk).
The size of the "hot-band" depends on the size of the disk (ie. 5MB of hotband space for each GB of disk). "Cold" files that were in the hot-band will be moved out of the hot-band to make room for the hot files. As a side effect of being moved into the hot-band, the hot files are also defragmented.
Currently, Adaptive Hot File Clustering only works on the boot volume, and only for Journaled HFS+ volumes that are more than 10GB.
AHFC not only optimizes the location on the hard drive of the files you read the most, but in the process of moving them, it also defrags those same files.
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