Service Packs are infrequent but major updates to Windows XP, and are primarily designed to squash bugs, sew up security holes, and add new features to the operating system.
The first, Service Pack 1, is undoubtedly already installed on your computer, either via Windows Update or because you bought your computer in the last two years. It may be a while before its follow-up, Service Pack 2, released in August 2004, is as ubiquitous. Microsoft admits that the adoption rate has been slow, no doubt because SP2 is huge—and because it introduces some new problems.