1) You must be running Windows 7 Professional or Ultimate. Windows 7 Home Premium users or Vista users of any flavor are not currently supported.
2) Windows XP Mode requires hardware support for virtualization. For Intel CPUs, that means the CPU must be VT-x capable, while AMD processors need to support AMD-V. You can find a
list of supported CPUs on Wikipedia.
3) Even if you meet those requirements, Windows XP Mode may not run, because your BIOS needs the ability to enable hardware virtualization. Most current-generation motherboards can enable hardware virtualization, but often ship with the capability disabled. You’ll need to manually enable the feature in the BIOS setup.