The Royal Swedish Academy of Sciences has awarded the Nobel Prize in Physics for 2007 to Albert Fert from France and Peter Grünberg from Germany for their discovery of Giant Magnetoresistance. Working independently, the two discovered the Giant Magnetoresistance effect in 1988, although it wasn't until 1997 that the first hard drives using the subsequent technology appeared.
It is directly as a result of that 1988 discovery that hard drives have been able to shrink so dramatically in physical size whilst increasing in capacity over recent years.
Giant Magnetoresistance, or GMR, in a nutshell is where very weak magnetic changes give rise to major differences in electrical resistance. Such a system is ideal for reading data from hard disks when information registered magnetically has to be converted to electric current. A hard disk stores information, such as music, in the form of microscopically small areas magnetized in different directions. The information is retrieved by a read-out head that scans the disk and registers the magnetic changes. The smaller and more compact the hard disk, the smaller and weaker the individual magnetic areas. More sensitive read-out heads are therefore required if information has to be packed more densely on a hard disk. A read-out head based on the GMR effect can convert very small magnetic changes into differences in electrical resistance and there-fore into changes in the current emitted by the read-out head. The current is the signal from the read-out head and its different strengths represent ones and zeros.
The GMR effect was discovered thanks to new techniques developed during the 1970s to produce very thin layers of different materials. If GMR is to work, structures consisting of layers that are only a few atoms thick have to be produced. For this reason GMR can also be considered one of the first real applications of nanotechnology.
The full technical and scientific background can be found in this PDF document.