Windows XP Mode ensures that applications designed for XP run seamlessly on Windows 7. Although legacy Windows XP apps run from within a virtualized environment, they can be accessed in exactly the same fashion as native Windows 7 apps.
Windows 7 users will have to ensure that their CPU supports Intel Virtualization Technology or AMD-V for Windows XP Mode to work. It is also important to check whether hardware virtualization, if supported by the CPU, is turned on or not. If this feature is disabled, it will have to be enabled in the BIOS settings.