You don't need to format your current install, in order to install XP. You can setup what is called a dual boot option. You'll want to follow method 2, in this guide.http://www.sevenforums.com/tutorials/8057-dual-boot-installation-windows-7-xp.html
If you just want to wipe out windows 7, then you need to boot off of your XP disc, and format the current install. You can't do it from within windows. You can do this by either changing the boot order in the BIOS, or selecting the CD/DVD drive from the boot menu on startup.