All it will do is activate the onboard RAID chip and possibly prevent one of those annoying little yellow exclamation marks showing up in Device Manager.
But no, you don't need it and it will do no harm not to install it.
Myself, I'd install it just to lose the prompt
It will not affect your day to day usage on Win XP at all.
RAID, very simply, is a way of using several hard disks together as one and/or permanent active backup. There are several combinations of RAID, RAID 0 being the most common where two disks work together as one, doubling the size of your main storage disk and increasing the speed of the disk(s) (in theory).
The onboard RAID chip controls these actions.
If you're really interested, seek out the Wikipedia explantion but you really needn't concern yourself with it in this instance.
PS: Make sure your disks are set to IDE/SATA in the BIOS and not RAID.