Read this little tidbit hope it helps explain your question.
What is Windows Product Activation?
Due to piracy and other forms of unauthorized use, users cannot always be sure that they have a genuine copy of Windows XP. The goal of product activation is to reduce a form of piracy known as casual copying or "softlifting". Casual copying is the sharing and installation of software that is not in compliance with the software's end user license agreement, or EULA, and is estimated to contribute to half of all pirated installations. Microsoft developed Product Activation for Windows to help ensure that each Windows XP license is installed in compliance with the EULA and is not installed on more than the limited number (usually one) of computers allowed by the product EULA. We have worked to make it as easy as possible to activate a licensed installation of Windows XP.
To learn more about Microsoft's licensing policies, open EULA
During software installation, the setup wizard prompts you to enter a product key usually located on the back of the Windows CD-ROM folder. The product key is a 25 character alphanumeric code shown in five groups of five characters each (for example, BCDFG-12345-HJKLM-67890-NPQRS). Keep the product key in a safe location and do not share it with others. This product key forms the basis for your ability to install and use Windows.
The product key also forms the basis for the product ID that is created when Windows XP is installed. Each licensed instance of Windows XP has a unique Product ID. The Product ID has 20 characters arranged like this: 12345-123-1234567-12345. It is listed in the properties for My Computer.
For purposes of product activation only, a non-unique hardware identifier is also created from general information that is included in the system components. At no time are files on the hard drive scanned, nor is personally-identifiable information of any kind used to create the hardware identifier. Product activation is completely anonymous. To ensure your privacy, the hardware identifier is created by what is known as a "one-way hash". To produce a one-way hash, information is processed through an algorithm to create a new alphanumeric string. It is impossible to calculate the original information from the resulting string.
The hardware identifier is used together with the product ID to create a unique installation ID. Whether you choose to activate by using an Internet connection or by speaking with a Microsoft customer service representative, the installation ID is the only piece of information required to activate Windows XP.
If you activate via an Internet connection, the installation ID is sent automatically. When you decide to activate over the Internet, Windows attempts to establish an online connection to Microsoft by way of the Internet. If you do not subscribe to an Internet Service Provider but do have a modem connected to a phone line, the wizard detects the modem and attempts to make a direct connection to Microsoft.
If an online connection cannot be established, you are prompted to contact a customer service representative by telephone. In that message, the installation ID is displayed to you. The customer service representative will ask you to read the installation ID over the telephone.
Activation is completely anonymous; no personally identifiable information is required. The installation ID records an association of the product ID to your computer and a confirmation is sent back. The product key can now be used to install Windows on that computer an unlimited number of times. However, if you need to install Windows on a different computer using that product key, you might need to contact a Microsoft customer service representative by telephone.
Until you have activated your copy of Windows XP, an Activate icon appears in the system tray. You can click on the icon to initiate activation. This icon will not appear in the system tray after you have activated Windows XP.
You have a 30-day grace period in which to activate your Windows product installation. If the grace period expires and you have not completed activation, all features of Windows XP except the product activation feature will stop working.
im about to upgrade my pc's mobo, processor and ram. What i want to know is if this will invalidate my current windows licence?
I use windows XP Pro.
I ask this because i know that windows is tied to a specific PC.
Thx for any help