When you view a folder for the first time, Explorer arranges the items in a nice default pattern. And when items are added to the folder, they get added to the end. And when you delete an item from the folder... the other items auto-arrange to close the gap? But wait, if you look at the View options, the Auto-Arrange option is not set.

So are we auto-arranging or not auto-arranging?

Well, yes, but only until you touch it.

As long as you express no interest in the placement of icons in a folder (and the desktop counts as a folder), then Explorer will auto-arrange them. But once you move an icon around, Explorer will turn off its double secret auto-arrangement and leave the icon arrangement to you.

(Programmatically, this mode is known as LVS_EX_AUTOAUTOARRANGE.)