I created an SSH session into my localhost through PuTTY. I am running OpenBSD server on the localhost which is a Windows 7 machine. The login was successful. Now I want to start programs in the PuTTY shell for example notepad.exe. I changed the directory to c:\windows\system32. The command start notepad runs without error but I don't see any window.
Is the notepad running in the background without a windows. If yes, how to make the window visible??
Yes, it's quite likely the Notepad is run in an invisible Windows session on the server. Note that it does not make a difference in this case that the server is the local machine.
If you hoped for the window to appear on the "local" machine magically, you are out of luck.
Generally, it's possible to run a GUI application on remote machine and see the GUI locally. On Unix it's quite common. Typically X Window is used for that.
But Windows GUI applications cannot be "tunneled" via SSH session to a local machine.