Microsoft said back in April that it would offer the XP Mode. Aimed primarily at small businesses, the virtualization layer is designed to help ease the transition for those still running programs that don't work properly with Windows 7 or Windows Vista.
To use the compatibility layer, users need to be running Windows 7 Professional, Windows 7 Enterprise, or Windows 7 Ultimate.
The other tricky point is that to use XP mode, consumers also need a machine that has chip level virtualization support and has that feature turned on, something that isn't always easy for consumers to determine.
At its core, XP Mode consists of two things, the Windows Virtual PC engine and a licensed copy of Windows XP Service Pack 3 as a packaged virtual machine, both of which Microsoft will make available for download.(source)
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