You will have to activate it at some point but you don't have to do it straight away. I can't remember how long you do have to activate it but you won't (I think) be able to download updates from MS until you do.
If you have not activated Windows XP, you will be reminded each time you log in and at common intervals until the end of the activation grace period of 30 days. If you have not activated Windows XP within this timeframe, you will need to do so to continue using it.
Many thanks to all who have replied. As this is a replacement PC for an older one which is being pensioned off and will be plugged into a router on BB along with one other PC networked does activation still apply.
If you have the new one connected to the router when you first switch on it will go through it's first start up routine and will detect you internet connection and will ask you if you wish to activate it online click yes and it will connect to the activation site and activate it for you.