How does software like hide folders or truecrypt work?

I am particularly interested in a how hide folders work or how can it be achieved programatically (.net). How can I create a folder such a way that

1. its hidden
2. Does not appear in search (even if hidden folders are opted)
3. No files system structure modifications are required

How are folders encrypted. Any links or advices would be great. Thanks in advance.

From stackoverflow

• I know you can hide drives using a registry setting:

  http://www.pctools.com/guides/registry/detail/148/

  but this will not create the invisibility in searches that you want. I know this doesn't really answer your question. However, if nothing else, hopefully it will keep others from going down that road... =p

  On the other hand, Truecrypt is open source. I haven't had an interest in this subject myself, so I don't know how it works (beyond the fact that it uses a special storage driver in Windows), but you can check it out for yourself here:

  http://www.truecrypt.org/downloads2.php

• I expect it's a device driver (maybe a filter driver to the file system).

  Without writing a device driver, the easiest way is to use one of the (apparently many) 3rd-party add-ons which implement this functionality.