Reformatting causes
everything on your hard drive to be erased, with Windows reinstalling itself. By everything, I mean that it will look like it did when your computer was brand new (emptier, in fact, depending on where your computer came from).
http://helpdesk.its.uiowa.edu/windows/instructions/reformat.htm
I can't speak for the quality of this guide, but it all seems to be there. Print it off, or write it down, because it will be some time before you can Before you do this
disconnect your computer from the internet.
Your computer should have come with a CD of drivers too. Install the ones that apply to your rig (my Dell came with a crapload of drivers for a ton of different hardware configurations) before reconnecting your internet. Then, don't even think of touching the web except for the Windows Update page until you have XP SP2 installed and patched. It'll take a number of reboots, but until those are all on, you're computer will be very vulnerable. During the patching process, I often get popups (always wondered if it was just my computer until the new computer I built did it too) telling me there are viruses on my computer, or that the registry is ****ed, or some such BS, and that I need to go to some URL to get software to fix the problem.
Ignore them, and X them closed as they popup. Once Windows is patched up, they'll stop. Then download Firefox from mozilla.com. Use it to surf around and find the latest drivers for your audio and video cards. Reinstall your software and games, and you should be back in business.
I spend all the time patching and downloading playing games, so pick a single player game to pass the time with, it usually takes and hour or two to get everything installed and up to date.
Reformatting is a good skill to have for anyone that owns a computer. It's the perfect last ditch effort to clean up your computer.
Everyone feel free to interject here, as I can only speak from my own experience.