What makes a computer slow?

Today, the bottleneck is the harddisk. The main memory is about 10-1'000 times slower than the internal caches of the CPU. The harddisk currently is about 1'000 to 1'000'000 times slower than that. On the negative side, applications get bigger all the time (more fancy icons, more functionality), take more memory (so you need to swap to disk -> slow).

Some good answers to most of your question. I'll address this part-

How can we improve it?

Here is a list in increasing rough order of cost.

Finding the optimal video driver for your application, especially if you have a non-Intel graphics adapter like Matrox, Nvidia or ATi. Sometimes the optimal one is not the latest one.

Minimize autoload and system tray clutter. Remove unused drivers and applications. Clean the registry with a tool such as CCleaner. If your Windows install is more than 2 years old, consider a backup and reinstall.

Defrag your hard disk. Check your hard disk for retry errors and replace if degraded.

Having more RAM than O/S + Application can avoid swapping to disk.

If you are running Vista, upgrade to Windows 7 (speed improvements in most cases, especially boot time).

Upgrade from a 5,400 or 5,700 RPM hard disk to a 7,400 or 10,000 RPM HDD.

An SSD (Solid State Hard Disk) can improve boot time and application load time, by replacing the slowest part of the system (the hard disk) with storage with a retrieval time more in line with the rest of the system. You can still use your Hard Disk for data storage, as SSD's are merely comparable in Write Time, and may have longevity issues if written to constantly.

Upgrade the CPU to the fastest available for your given socket (may not be an option for soldered systems like some laptops).

Upgrade from a single disk to a stripped array on a caching controller such as 3Ware.

It's not just that the hard disk is slow, but often that multiple programs are competing simultaneously for access to the hard disk, and that makes it EXTRAORDINARILY slow!

Worst offenders are systems with more than 1 realtime antivirus/malware scanner running simultaneously. Pick 1 good antivirus (like Microsoft Security Essentials - free) and stick with that one. Be aware that Windows 7 comes with its own Windows Defender that could compete against a third party AV product. If you install MSE, it upgrades and overtakes Windows Defender.

Any other software like disk indexers, that runs all the time and constantly accesses the HD, would be a primary culprit of computer slowness.

This looks like very very broad and general question. You have not specified your OS. So I will assume that you use one of the Microsoft systems. All of them can be tuned a bit. You can switch off some services using services.msc Here is a description of Windows XP services. http://bloggerdigest.blogspot.com/2007/01/disable-unwanted-windows-xp-services.html You do not need helps/schedules. One hint if you do not understand if service is needed make it run manually not turned off. You can make a size of swap file constant - decreases boot time. Remove many many tray applications (msconfig or use startup.cpl) Use lighter anti-virus like NOD 32/other instead heavy big and slow Symantec.

Hardware boost can be done by switching hard drive to SSD and using it only for operating system, data stored on traditional HDD. In case of Linux system rules are similar - investigate boot sequence. Switch off not needed services basing on rule if I do not need that service it does not have to run.

Switch off wallpaper and complex GUI layout make it barebone like AK-47 pure functionality. Remove skype/IM from autorun you can launch it when system starts up.