If you go to Widgets in the Appearance menu, you will see a Widget there labeled Archives, if you drag that to your side bar of your them, it will show up on your blog as a list of months in which you wrote posts. If you look at my blog you will see that I wrote posts in December, and January. Clicking on either of those months will show you a list of those blogs that have been “archived”to that month. Archiving does not remove the blog from the site, and someone could use search and still find any blog post you have written as long as it remains “published”. So Archiving is a bit of a misnomer as it does not cache the posts away somewhere, it just categorizes them as a monthly list and if your blog is older and has a lot of posts its easy to find them other ones.
You can create an archive that functions differently by creating a link category named “Archived“. Once you do that you can then go to your website in a browser not in the Blog Admin and create a link to a post such as http://www.tweekniks.com/katesspace/2011/01/24/dear-god-its-me-kate/ in a Link on your website, check the Link Category “Archive“. You can add as many links to this Link Category as you want. Then you can go to Widgets, Click and move a widget names Links to your sidebar, Pick the Link Category “Archive” chose how you want it to post, such as an image, and then click Save, then you go to your blog on a browser and you will see your “Archive” link category show up there.
So basically Archiving is just a link of posts that are displayed in a monthly default view or a Link Category view that you create yourself. There are some custom plug-ins to change how Archiving presents or functions.