Windows XP Mode and Windows Virtual PC are best experienced on your new Windows 7 PC. Windows XP Mode is specifically designed to help small businesses move to Windows 7 with the flexibility to run many older productivity applications on a Windows 7 based PC. All you need to do is to install suitable applications directly in Windows XP Mode which is a virtual Windows XP environment running under Windows Virtual PC. The applications will be published to the Windows 7 desktop and then you can run them directly from Windows 7.

Source:→ Windows Vista Team blog