As Wolluf says, you need at least one partition for Windows XP to install on.
However, you may want multiple partitions as they are handy for a variety of reasons. I tend to use them when I need a dual-boot system that will load, for example, Windows XP and Windows 98.
Another common use is to create a system partition for the operating system to live on and a data partition for your data to reside on. This can help speed up your PC and help protect against data-loss. i.e. you could wipe the system partition and leave your data intact. However, it won't protect against a drive failure.
You could also create multiple partitions for different users on the computer (XP Pro only). If you format the drive using NTFS, you can implement disk quotas and additional security measures.
Regards,