From the IE7 Privacy Statement:

Application Compatibility Logging

This feature in Internet Explorer is designed for use by Developers and IT Professionals to determine the compatibility of their website with Internet Explorer. When you activate this feature, Internet Explorer logs data points about your interaction with webpages in an event log, which can be viewed with the Windows Event Viewer. These events describe different failures that happened on the site and can include information about specific controls and webpages that failed. By default, this information may be viewed by all users on the computer unless an administrator restricts this access. For more information on logs and the use of the Windows Event Viewer, see the Windows Help topic "Event Viewer".

Liam