As far back as I can remember, Windows has had an inbuilt program that allowed users to send and receive faxes. It wasn’t the fanciest program, and in later versions of Windows it had to be installed manually. But it was there.
However, with Vista, fax has been dropped from all versions other than Vista Office and Ultimate.
Judging from the irate letters I get, Microsoft made a big mistake in dropping fax capabilities from the lower-end versions of Vista.
The situation was made worse by the fact that when Vista was released, many commercial fax programs wouldn’t work with Vista and a number still won’t.
The bad news is that I am not aware of any free fax program that works with Vista. As I see it you have two options:
First, use a free web based fax service. K7  runs an impressive inbound fax service wherein faxes received at your personally dedicated phone number are forwarded automatically to your email address. EFax offers a similar service, though they will send you a fair amount of promotional material as well. For outbound, try faxZERO; it’s free for up to 2 faxes per day to the US or Canada.