Defragment question!

Both. When you download, the setup files go to wherever you tell them, then the installation unpacks them and distributes them around, each operation creates new 'fragments'!
(quick answer: turn on scheduled defragmentation for all hard drives and never think about the issue again.)

More specifically:
When you first install Windows and other programs there are really no issues. However, as you begin REMOVING programs for example, empty locations begin to appear.

When you later install a program it may be spread over a number of these locations rather than being all in one location. By being spread out the READ head has to jump around to load the program and that physical movement slows things down.

Practical defrag need:
When you have sufficient RAM, say 4GB with 64-bit Windows 7, many of the programs you normally access are buffered in your System RAM so that even a heavily defragmented drive may have little effect.

How often to defrag?
Once you have most programs installed you could easily go a year with a defrag and really not notice much difference. I recommend you simply setup the AUTO DEFRAG option. Windows checks periodically and defrags once the PERCENTAGE is high enough to warrant it.

SSD's not only do not require defrag (they are Random Access) you are not supposed to as it would just add to the wear for no reason.

*Set all hard drives (non-SSD's) to auto defrag and then simply forget about it!!!