A partition is an area of your hard drive that is prepared so that your operating system can use it once it has been formatted. If you create one partition it will use the whole of the drive and become C:. If you create two partitions you will get C: and D: which will appear as two separate drives even though you only have one physical drive. click here for more information. In particular see the section headed: "How to Partition and Format Your Hard Disk by Using Windows XP Setup".
If you have a full copy of WinXP (or WinXP upgrade plus full WinME), change the BIOS boot sequence to put the CDROM drive ahead of the hard disk, put the WinXP CD in the drive and answer the questions you are asked. As it starts to install, I suggest you set up 2 partitions, one for XP and one for data. Depending upon the hard disk size don't allocate more than about 20Gb to drive C. The rest becomes drive D where you can store data, e.g. pictures, music, videos and the like.
So, the basic sequence is partition the disk, format the partitions, install windows.
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