An operating system is made up of various components that work with each other. The OS isn't just one object - it's a collection of smaller objects, each of which performs a different task. Their conjunction is what makes an "operating system". Windows XP calls these components "services", Linux calls it "daemons" and so on. Each service in Windows XP is essentially, to put it in a simpler way, an application that stays running in the back doing its job when required. Now each service takes up some memory, which isn't good if your system has a low amount of memory (like 256MB or less). Fortunately, not all of the default services are required by all users, so you can turn some of them off to free up some memory.
Really helpful for slow computers out there. And since most people are not familiar with Windows XP services running in the background, This is a good guide on what to disable. And remember if things don't go well, just reverse everything.