Defrag improves file access times since it takes longer to read a moderate/heavily fragmented file compared to an unfragmented one. Same with free space fragmentation...writing a file as a contiguous block is faster than writing it into many small gaps inbetween other files. Sequential operations such as backups and file transfers between drives will be faster with un-fragmented files.
I've read (not 100% sure if it's true) that file recovery from a crashed or corrupted HDD is relatively easier if the files are logically contiguous as opposed to split up and scattered around. I don't want to find out
If the MFT (the most critical file on an NTFS volume) is badly fragmented, then access to other files also will slow down since the MFT is referred to for each file read; so it's a good idea to avoid it's fragmentation (don't fill the drive up beyond 90%).
Anyway, regardless of all the arguments for and against defrag, I've always found that a nicely defragged system just runs
smoother overall, boots up faster, and does not have irritating pauses when opening or writing files. This is not a placebo effect since I use my systems for more than 5-6 hours daily and am very sensitive to performance changes. On slower systems like laptops, defrag can make a solid difference in file performance.
So, defrag or not, the decision is yours. I know I will keep my drives defragmented. Well, actually my Diskeeper will...since it's fully automatic.