Windows XP runs Windows 3.x programs without a hitch, thanks to its Windows-on-Windows (WOW) system, which lets these older Windows programs see the 16-bit Windows operating system environment that they expect. WOW, in turn, depends on the Virtual DOS Machine to provide emulated hardware support. This sounds complex, and it is, but from the user's point of view, you can just run an older Windows application and it just plain works.
One significant thing that WOW does is monitor the old configuration files WIN.INI and SYTEM.INI. Old Windows programs expect to see Windows's system settings in these files in the Windows directory. Windows XP therefore keeps copies of these files up to date with your system's current settings. It also tries to detect changes made to these old configuration files made by legacy programs that are attempting to signal Windows to make changes.