Windows® XP Mode
Windows XP Mode is perhaps the most surprising features of Windows 7 Release Candidate 1, which became more widely available on May 5.
This new attribute allows a user to run XP applications in an XP compatibility box, but makes them look like they are running directly in Windows 7 itself. Therefore, you can have compatibility of XP along with the brighter and fresh Windows 7 interface.
A user need not actually run Virtual PC manually to run those XP applications. He is required to run Virtual PC the first time and run the application, after that it will appear to be just another application running directly in Windows 7.
Moreover, Windows 7 EULA (end-user license agreement) includes XP as well, meaning you need not shell out anything extra to purchases XP separately.
The feature wards off Microsoft biggest issue with XP very ingeniously. People simply don't want to give up a solid, stable operating system like XP to a newer OS. Now they don’t need to - they can run XP as if it were a feature of Windows 7.
XP Mode requires a stronger system than that needed to run just Windows 7 or XP alone, including at least a system that has chip-level virtualization from either Intel or AMD and 2GB of memory.
The feature comprises two things - a licensed copy of Windows XP Service Pack 3 as a packaged virtual machine and the Windows Virtual PC engine. Although neither piece will be there in the Windows 7 box, users with a license to Windows 7 Professional, Windows 7 Enterprise, or Windows 7 Ultimate can download XP Mode for free.
Microsoft is targeting mainly small businesses with the XP Mode feature, but larger businesses may also need to run older applications. For bigger firm the company has a product called MED-V that allows control over things like who can install programs on their machines and other management issues.
An upgraded version of MED-V will be there in beta within 90 days of the launch of Windows 7, which will add strength for Windows 7 to Windows XP Mode.