Forget about password protecting folder software. This on the fly encryption program takes hassle out of protecting your important files. You can create a virtual encrypted disk within a file which mounts as a real disk. All you have to do is create a container file (volume), specify the size and the password using truecrypt and it creates the file. Now you can open this container file using truecrypt and using a drive letter that is not being used. Simply move the files to this drive and once you are done, unmount it. You can copy this container file anywhere you like. It will only open using truecrypt and password that you had for it.  It has other options too like encrypting the whole partition. More than 1 million copies have been downloaded. I think its one of the best free open source software available.

Very easy tutorial can be found here

Website: TrueCrypt.com