Say you need to rebuild your system, and have no media to do so
(you forgot to make the resture disks from the on-disk files)
Your buddy has a copy of the same version of Windows XP (home, pro,
whatever) that your PC came with. You have a licence on the
sticker on the side of the PC. But the installation from his disk
doesn't recognize your product key. This could be caused by
varying market channel (OEM vs retail or volume licencse).
So you install with his key(which is generally a no-no), then use
the product key changing program to reset the machine to your
legitimate key.
Here's MS's tool for doing so.
http://www.microsoft.com/genuine/selfhelp/PKUInstructions.aspx
This would also be used if you create a master setup disk and clone
it to several PCs, then set them to their individual product keys.