In Windows 3.1 (as in In the Beginning ...) there was the
desktop. This was the main windows. Minimised programs appear as
icons on it. You can only store minimised programs on it (which
is not really storing). This is where bmp wallpaper is
displayed.
Windows 95/NT4 were released. This introduced the taskbar and
Start menu. A folder window which has a window style of no
border, no titlebar, transparent background, and a few other
things (these are all standard properties of a window), then
sized to the monitor and set to the desktop folder. When you
minimise a window, explorer notices and changes the taskbar then
moves the minimised icon off the desktop (it's a bit offscreen).
When IE4 was released, a web page browser was inserted into all
folder windows incl the desktop. So the architecture now is
original desktop, underneath a web browser hosting a file
listing. Non bmp wallpapers are displayed in the web browser. In
XP, It only works this way if it needs to to fullfill a
function, such as displaying html wallpaper, else it works like
95.
Windows have a Z order. Which window is on top of another. By
changing the position of the desktop window it moves the non
minimisable apps (and non minimisable is also a window property)
to underneath the desktop hiding them.