If you're using 2.2 (froyo),
1. Disconnect your USB cable from your phone.
2. Go to Settings > Wireless and network > USB Settings > Mass Storage
3. A screen should appear with an Android logo with an option to Connect USB, click it.
4. Wait for your Windows to download the drivers (if it's your first time connecting)
5. After a few seconds, a Removable Disk (mine is L:, not sure what yours is) should appear and you can open the files and drag and drop stuff from your PC to your phone or vice versa.
To check if you're using 2.2 or 2.1, go to Settings > About phone and check the Firmware Version.
Hope it helps
When I go to Wirelress and network > there is no USB Settings folder.. Using 2.2
[Edit]: I have an SGS 4G
[Edit 2]: Found it! For SGS 4G = Settings > Applications > USB Settings > Mass Storage