Windows XP Mode (XPM) allows you to run your Windows XP apps in a virtual environment alongside your Windows 7 apps in the same desktop. It was designed by Microsoft to ease the transition from XP to Windows 7, particularly for small businesses that are reliant on their legacy apps.
Here is a quick screenshot tour from getting Windows XP Mode ready to publishing apps directly into Windows 7. You can click on screenshots for full size view.

Here are the files that are part of the package. The KB Update must be first installed, since it installs Virtual PC into Windows 7. After a reboot, running the VirtualWindowsXP Package will automatically install XP onto a VHD and run it in Virtual PC

Running the VirtualWindowsXP package will first prompt you to enter a password. You "must" enter a password now to properly enable integration features, or else you'd have to do it manually from Control Panel later on. It'd also be a good idea to check the "Remember Credentials" box because you get prompted very often later on if you don't.

After clicking next a few times, just wait 15 minutes and you're all set. The setup is completely automatic.

Clicking Continue will insert a CD image into XP and allow you to install the tools necessary for the integration features.

It will then install a Driver in your Virtual OS and your Host OS. Setup process doesn't take too long
Let’s take a look at how to publish apps over to Windows 7:

Once you're in the All Users folder, open Programs, and drag the corresponding shortcut. Wait for a bit (the screen will flicker), and your app is published!

A new folder is now added into the Start menu under Windows Virtual PC with all your Virtual apps stored inside

When you launch your virtual app, you have to shut down the Virtual PC window. However, the Virtual PC process will still run in the background

Initializing virtual environment again. This usually takes 1-2 minutes. Good thing is after you've initialized the environment, opening apps open just as fast as any other app
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