The Ethernet-cable (not a patch cable, but a crossed cable!) between the 2 PC's is needed for the physical connection, if they aren't connected (wired or wireless) to the same router.

But there is some setup necessary also. Before Windows 7 you had to make sure the PC's are in the same workgroup, the user who does the transfer has an account on both systems and file sharing is activated. That still works in Windows 7, but Microsoft made it easier by using a Homegroup.
http://www.howtogeek.com/howto/windows-7/share-files-and-printers-in-windows-7-with-homegroup/ tells more. Googling WINDOWS 7 HOMEGROUP will give you a lot of other useful hits.

Kees