It checks for, and where necessary, replaces corrupted or missing system files. Depending on your install set up, you might need your original Windows XP disk to successfully run it.
And just to make sure you've got it right, you'll run it from START, Run and you'll type "sfc /scannow" and then hit ENTER. Note there's a space between sfc and the /scannow.
sfc stands for system file checker (put here so the search engines can find Snakeyes' answer.)