It restores your computer to a previously-stored state, as in (for
example) just before you ran the Setup for a major update of an application.
This does not do formatting.
First remember that whenever you format a computer, you also delete all
the data files on the hard disk, so ensure that you have backed up any data
files, address book(s), e-mail files and configuration setting you need to
keep to a removable media such as tape or writable CDs. Don't skip this
step.
What you need to do is boot from the Windows XP CD, and choose Recovery
Console. This is a command-line-driven utility, so first look it up in the
Help and Support on your computer, and print out the relevant documentation.
From here, you can reformat the hard disk, and thus rebuild the computer.