FTP (File Transfer Protocol) allows users to transfer files between machines on a network. FTP servers can be configured privately, allowing only system users to connect, or anonymously, allowing anyone to connect without an account. Common FTP commands include ftp to connect, cd to change directories, dir to list files, get to download, and put to upload. To download a file from an FTP server, a user must connect, navigate to the file's directory, transfer the file in binary mode, and disconnect by typing bye. Installing FTP server on Windows 2000 involves installing IIS, selecting FTP during Windows component installation, configuring the FTP site and user permissions.