Sometimes, either due directly to some user action or more often by some process (say, some app with a poor memory management implementation that's leaking memory...) the system can become unstable or a process will crash and an exception message will be surfaced
by the OS.
The causes of unhandled exceptions are often in and of themselves cryptic in nature. Memory reading exceptions are not easy to make understandable to the layman. When an app can't read from memory it expected to be able to read from, then the app may crash
on you. When a process tries to write to a place it doesn't have authority to write to or is being used by some other process, an exception will be raised.
Typically, things like memory address space allocation/de-allocation, file IO are concepts that do not make a lot of sense to the average user. That said, we are working on this problem and with every iteration of Windows thinking about and constructing meaningful
error messages, even for the most arcane of exceptions, are always on the radar.
Remember, for exceptions that cause system stability issues, reliability problems, app crash, app hang, etc, when you see the prompt to send the error details to Microsoft you can rest assured that the details of the exception will be read by somebody who
really understands what it means. So, keep on sending the data to us!
As to your question about what we Microsoft people do when confronted with system stability/reliability problems it depends on the individual. A system developer, for example, will most likely hook up a kernel debugger to her system and try to identify the
cause, then pass the info on to the appropriate team. For the less super technical type of person, and there are many, he would call help desk or backup data and re-install... I think the latter is extreme and often unnecessary.
If you find yourself re-installing an operating system all of the time to combat system stability problems, I'd suggest contacting the manufacturer's support division and get some help figuring out what is wrong.
Nailing system reliability and stability are huge tasks in any complex operating system. We have come a long way with Windows and even though we are far from perfect, we are making steady progress.