Here's what i found on a site.
Windows Product Activation (WPA) requires that you have to log on to Microsoft's website, or telephone to obtain a Product Activation key in order to be able to use installed software. You supply the product's identification key that Windows XP generates to Microsoft via its website, or over the telephone. This makes it difficult to use the software on more than one computer, because Microsoft will not allow a product identification key to receive more than one Product Activation key. The installed software will then also identify the computer by its hardware - BIOS, hard disk drive, motherboard, etc. If you have to reinstall the software, you will only be able to do so if it recognises the computer's hardware configuration. It will not install if it does not recognise the system.
So, what if you want to reformat your hard disk drive and then reinstall the software? - According to Microsoft, you will have to telephone for a new Product Activation key. At present, the website option is not available for this set of circumstances.
What happens if you upgrade your computer's BIOS, hard disk drive, or motherboard? - You will probably have to follow the same course of action if Windows or the Office application does not recognise the system. Windows XP will interpret the changed system as being a new one if it cannot recognise the hardware setup it is programmed to recognise the first time it is installed, and will not reinstall.
Note that many computers bought in retail outlets or from mail-order companies will come with its XP products already activated.
Also here’s a short article from Microsoft’s knowledge base about it.
http://www.microsoft.com/windowsxp/evaluation/features/activation.mspx
