What does it mean when the text of a file or folder is blue?

When you are seeing a file or folder name in blue in Windows Explorer, it means that the file or folder is compressed to save disk space.

(They are not encrytped, file and folder encryption is another setting. Encrypted file/folder names are shown in green colour. You can delete the compressed files and folders as you would delete a normal file. The only difference between them and normal ones is in the way Windows stores them in your hard disk)

In Windows (only in NTFS formatted drives) there is an option to store the files in a compressed form. If this setting is enabled, every file is stored compressed. Though the disk space you save on each file depends upon many factors like the size and type of the file (in some cases there won't be any space saving at all). This slightly increases the time needed (you won't notice any difference) to access them, since they have to be decompressed first.

To turn compression on / off for a whole drive, right-click the drive in "My Computer" and on the dialog that appears, check / uncheck "Compress drive to save disk space".

To compress / decompress a single file, folder or a group of them, right-click them, and on the Properties dialog that appears, go to "Advanced" and check / uncheck "Compress contents to save disk space".

They could be encrypted, but it's far more likely that they're simply compressed, which Windows does automatically with some folders to save a bit of space. As to deleting them, Only you can decide that, though, as with anything on your machine, if you're not sure what a particular file or folder does then it's best to leave well enough alone.

More info here:

http://xona.com/2006/07/11.html

The blue text means it's some sort of system file

I believe this indicates encrypted files or folders.

It usually means those files are no longer available or can not be opened.

It's an NTFS file. Or it's a link.