Compatibility Mode is most commonly used for applications that may have peformed better on another Operating System such as Windows 95, 98, ME, etc.
Should you install Windows XP and experience a negative impact on a particular application you can try to run it in Compatibility Mode. To do so:
1. Right click the Executable file and choose Properties.
2. Select the "Compatibility" tab.
3. Place a check mark in "Run this program in Compatibility Mode for:"
4. Select the Operating System you would like to run the application in from the drop down list.
5. Select more specific options if necessary, such as color depth, etc.
6. OK the change and test.