It wouldn't be fair to start off without placing a link to Microsoft's article about Windows XP activation. In a nutshell, XP Activation is an anti-piracy technology that links your computer to the CD that installed XP. This way, if someone tries to install XP from the same CD, when XP installation goes out to the internet to activate XP, it will see that the CD that XP is being installed from already has a PC linked with it, and that the PC that it's currently being installed on isn't that same PC that's in the Microsoft database. If this happens, you can use XP for a certain period of time, but after that time (I think it was changed to 30 days), you cannot boot back into XP on that second PC without calling Microsoft and getting a 50-digit activation code.
At first I thought it was a little extreme, and I still think it is. Technically, according to the EULA, you can only install Windows on one PC.
You can find the End User License Agreement (EULA) in c:\windows\system32\eula.txt if you need to refer back to it after installation.
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