CD-ROM drives are necessary today for most programs. A single CD can store up to 650 MB of data (newer CD-Rs allow for 700 MB of data, perhaps more with "overburn"). Fast CD-ROM drives have been a big topic in the past, but all of today's CD-ROM drives are sufficiently fast. Of course, it's nice to have the little bits of extra speed. However, when you consider CD-ROM drives are generally used just to install a program or copy CDs, both of which are usually done rarely on most users' computers, the extra speed isn't usually very important. The speed can play a big role if you do a lot of CD burning at high speeds or some audio extraction from audio CDs (i.e. converting CDs to MP3s).
CD-R/RW (which stands for Recordable / Rewritable) drives (aka burners, writers) allow a user to create their own CDs of audio and/or data. These drives are great for backup purposes (backup your computer's hard drive or backup your purchased CDs) and for creating your own audio CD compilations (not to mention other things like home movies, multimedia presentations, etc.).
DVD-ROM drives can store up to 4 GB of data or about 6 times the size of a regular CD (not sure on the exact size, but suffice to say it's a very large storage medium). DVDs look about the same and are the same size as a CD-ROM. DVD drives can also read CD-ROM drives, so you don't usually need a separate CD-ROM drive. DVD drives have become low enough in price that there isn't much point in purchasing a CD-ROM drive instead of a DVD-ROM drive. Some companies even make CD burner drives that will also read DVDs (all in one). DVD's most practical use is movies. The DVD format allows for much higher resolution digital recording that looks much clearer than VCR recordings.
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