Please see this link on XP Mode - Windows XP Mode - Windows 7 features - Microsoft Windows
- It gives you an overview of what XP mode is. Also bear in mind that XP Mode requires Virtual PC - Windows Virtual PC: Home Page
Look those over and it should answer any questions you have about XP mode.
And again, to Summarize
XP Mode/Virtaul PC must be downloaded and installed. It will only work on Windows Pro, Ultimate, and Enterprise.
Windows Compatiblity Mode is built into all version of Windows 7.
These two programs work in different ways. The only common factor is that they both allow older programs to run under Windows 7; How they do it is the major difference.
Hope this helps.