With Window XP, if you're installing it for the first time, or reinstalling the OS, then you will have to go through the Windows Product Activation (WPA) process to activate your copy of Windows. The WPA process was created to help eliminate causal piracy of the Windows operating system. The WPA ensures that only one copy of the product key is being used on one computer, and not on multiple computers (this would violate the End User License Agreement [EULA]).
When you first install Windows you're requested to enter the product key, then after the installation process finishes you will be requested to validate that product key with the WPA. You can do this in a few ways, either over the Internet or by phone. If you don't validate your copy of Windows XP in 30-days, it will prevent you from logging into the OS until you have done so.
If you make upgrades to your computer with new components (such as a new: motherboard, hard drive, etc.), you're copy of Windows might require re-activation. This is cause by the fact that WPA thinks it might have been copied to another computer, and will force you to reactivate Windows XP by calling a telephone number listed on the activation screen.
Here is a video (in three sizes 300k | 100k | 56k) if you want to learn more.