Vista - File sharing vs Password protected file sharing

In Vista, what happens when you enable password protected file sharing over normal file sharing?

I realize it requires credentials but what is changed on the system to require this?

If I enable just File Sharing (and not the password protected option) and have the share/NTFS permissions set for a user, connecting to the share fails as it never prompts for the username/password.

When you turn on password protected sharing you are prompted then for a username/password. What I want to know is what changes on the system to then prompt for credentials?

Same thing in reverse. If I set the 'require password for sharing' and have the group 'Everyone' in the share and NTFS permissions I am still prompted for credentials if I connect.

Thanks!
Todd