MSDE - Microsoft SQL Server Desktop Engine, is a Free,light weight, re-distributable DataBase from the Microsoft.It is a less-featured version of the Microsoft SQLServer 2000 which is free to use for non-commercial use.For commercial use, one need to register with Microsoft [Most probably in this case also it can be destributed free of cost].The first restriction the MSDE comes in the form of size of each DataBase.It is set to a maximum of 2GB.Next it doesnt provide any graphical interface to administor the database and there are performance restrictions as well.For Students,website developers and programmers it is a perfect
choice.In Microsoft's words
MSDE 2000 is a royalty-free, redistributable database engine that is fully compatible with SQL Server. MSDE 2000 is designed primarily to provide a low-cost option for developers who need a database server that can be easily distributed and installed with a value-added business solution.
How to know whether you have MSDE installed in your machine or not.
To check it go to your Control Panel->Add or Remove Programs and check if you can see something like the one shown in the below snapshot.