Do you mean in separate locations or in the same house ?
If in the same a house then a simple home network is the easiest and best way.
If in different locations then you can do it in various ways.
You can use an instant messenger service such as MSN Messenger or, if on XP, Windows Messenger which installs when you install XP.
You can e mail each other but some ISPs have restrictions on the size of attachments so in that case you would need a file splitting program to do it such as Dynu Split, a free program from here :
http://www.dynu.com/dynusplit.aspAfter that it gets a bit more complicated as you would need to set up a server program, XP has one built in and if you look around the above site that has a free FTP server program too along with an IP tracking program in case you dont have a Static or "Sticky" IP address.
I hope this helps and that you wouldnt be transferring anything illegal such as pirated programs between each other, as PC-Pals could not help you to do anything like that
Another way, if you have a big enough webspace, is to upload to your webspace and your friend can download from it if you give him access to your log in details.
This may not work if you use different ISPs as sometimes they only allow access through their own connections