I've been using TrueCrypt
for years. It's especially nice because it's open source, and can be used on Linux, Windoze, and OSX, BSD, etc. Rather than encrypt a "folder" it lets you create a fully encrypted container file of a given size, anywhere you want on your hard drive, and use that file as a separate device (in Windoze it shows up as a hard drive). It's also very difficult for someone to tell that your container file is a TrueCrypt volume. The encryption is VERY strong, and the software provides some additional security features as well.
In addition to the container file method you can also encrypt entire devices or partitions (as long as they don't need to be bootable). Like an entire flash drive for example, or a separate partition on your hard drive.