Workflows could be implemented in three different ways in SharePoint 2007. SharePoint 2007 has some OOB workflows. Simple workflows can be created using SharePoint Designer. More complex workflows can be developed in Visual Studio. SharePoint 2007 uses Windows Workflow Foundation (WWF) as an engine for workflows. WWF provides workflow runtime, and SharePoint lists and document libraries provide data repository for the items used by workflows.
If you are interested in knowing more this MSDN link is a good starting point: http://msdn.microsoft.com/en-us/library/cc514224.aspx#MOSS2007DevWorkflowSolutions_WorkflowPlatform