I find it much easer to get a third party FTP server program than to try and use the one included with Windows, unless you already understand all this stuff about usernames, passwords and shares. There are many free FTP servers available for download from various shareware software sites. Most of the free versions tend to be a bit lacking in security controls but they do work.
I use two diferent FTP servers.
On my primary home server I use a program called BulletProof FTP Server which costs $40 but is very powerful and quite secure. Other pay FTP servers can cost anywhere from just a few dollars to many thousands depending on the intended use.
If you are just getting started, I would recommend you get a free server and play with it. Once you understand the system a bit better, and if you have the need then advance into a more secure and sophisticated server. In the past I have used the following free programs and find them quite nice.
On other machines I now use a free open source server called FileZilla Server. I have found it very good and reasonably secure, and best of all it's FREE. I continue to use BulletProof on my home machine because it is somewhat more powerful and has a number of special security configurations which I need for a server that is open to the world.
Many people don't realize that Microsoft Windows Explorer can be used as an FTP client. Just put ftp:// followed by the server address in the address line. Once connected you just drag files into or out of the Explorer window to your computer.
The difference between Active and Passive is how the server communicates with the client. I'm not going to get into the technical details which can get really confusing, but this is basically what's happening.
In active mode the client connects to the server using port 21. At this point the server sends an outbound connection conformation on port 20 which the client sees then they start communicating using various ports negotiated between them, moving files back and fourth.
In Passive mode the server behaves a bit differently. After the initial connection through port 21, the server assigns a port range for the client to use. Almost all servers that can accept passive connections will have a "Passive port range" setting. The administrator can define exactly which port range you want to use. By default their is generally a very wide number of ports made available. However you can limit the range to help reduce the complications of setting up your router. I have limited my server to 500 ports.
If you have a router, you will have to map several ports through the router to your FTP computer. Port 21 will always need to be mapped, and if you want to allow Passive Mode, you will have to map the port range you have selected in the Passive port range setting of the FTP server.
If you only want to use Active mode, it is sufficient to only map port 21 through your router. There are two problems with using Active mode. Active mode usually won't work through a firewall or proxy server, and the client must specifically be set for active mode. Many FTP clients will try to use Passive mode by default, so the user has to know how to turn off Passive mode.
The final thing to do is set up usernames, passwords and to define what directories they will have access to. This is dependent on the specific FTP server so you will need to use the help menu. Many of the better servers will have wizards to help you set up users.
A final point, I do not recommend allowing anonymous FTP connections, especially for uploading (the visitor sending you a file). This is extremely dangerous in these days and times with so much computer hacking going on. Only allow people you know to have access to your server, give each their own username and password, and keep the log going so you know who is uploading what. Check the log frequently and delete it often since these logs can get very large very quickly.
At the time of this posting, HP has a great, very technical, explanation of FTP and how it communicates. The document is concentrated on HP's FTP server but this explanation is the best I have found anywhere. Warning, it is extremely technical and probably won't make since to those not highly computer literate.
HP FTP explanation