There are several differences between a domain and a workgroup. The short
answer is since you you only have three Windows XP machines, the workgroup
is your best option.
At least one computer has to be running a Windows Server product setup as a
domain controller of the domain.
Domains can handle more computers and resources, and are scalable between
small networks (10 users) and enterprises (1 million+ users). Domains
provide centralized security, meaning all resources are managed by a single
entity. This provides better security and better control over access to
resources. It also eliminates the need for multiple user accounts, as a
single account provides access to all the resources that user account has
permissions for.
Here is a book that's a good starting point to learn more about Windows and
networking.
http://www.microsoft.com/MSPress/books/4077.asp