Windows 7 XP Mode requires a computer that has hardware virtualization. This tutorial from How-To Geek (www.howtogeek.com) shows how to use XP Mode with VMware Player on Windows 7 Pro, Ultimate or Enterprise.
Windows XP Mode defined from http://en.wikipedia.org/wiki/XP_Mode#Windows_XP_Mode
is a virtual machine package for Windows Virtual PC containing a pre-installed, licensed copy of Windows XP Professional SP3 as its guest OS. Pre-installed integration components allow applications running within the virtualized environment to appear as if running directly on the host, sharing the native desktop and Start Menu of Windows 7 as well as participating in file type associations. XP Mode applications run in a Terminal Services session in the virtualized Windows XP, and are accessed via Remote Desktop Protocol by a client running on the Windows 7 host.
Applications running in Windows XP mode do not have compatibility issues as they are actually running inside a Windows XP virtual machine and redirected using RDP to the Windows 7 host. Windows XP mode was not released for, and will fail to function on, any editions of Windows 7 below Professional Edition. However, running a copy of Windows XP in older versions of Virtual PC can have similar functionality likewise older copies of Windows on a virtual hard drive albeit with reduced functionality.