Now that we are done configuring the VM's settings and the XP CD is in your optical drive, we can boot the VM for the first time. We are back to the VirtualBox main window and your Windows XP VM should be highlighted. Click the Start button in the navigation bar. A new window will open for the XP virtual machine. After a few seconds of nothing, and maybe a window resize or two, the familiar blue screen of Windows' pre-installation will appear. When you first press a key with the VM window selected or click the mouse inside of it, a Keyboard/Mouse capture pop-up window may appear. You can decide to read it or not before you close it; in a few pages, you won't need to use the Host key anyway.
From here, you can install Windows XP as you normally would. In a nutshell: Enter, F8, Enter, Enter, Restart. As long as the XP VM window is the currently selected window, any keystrokes will register in the VM and not in your host OS. When the VM reboots, you should be in the XP graphical installation that we all know and love.
When the loading stops, the Regional and Language Options need to be dealt with. To use your mouse in the VM, left-click once anywhere inside of the VM window. The mouse is now being used by the VM and not the host OS. Also, its movements are restricted to inside the VM window. The little mouse icon directly to the left of Right Ctrl has been filled with color to indicate the mouse is bound to the VM. Press the right Ctrl key (that is, the Ctrl key on the right-hand side of your keyboard) in order to unbind the mouse and return it to the host OS.
Now that you know how the keyboard and mouse interact with the VM, go ahead and finish the graphical installation of XP. Basically: Next, enter name, Next, enter product key, Next, Next, time zone, Next, Next, workgroup name, Next. After another pause, the graphical installer will perform another reboot. Do Not "press any key..." to boot from CD-ROM if prompted. That will only result in going back to the beginning of the installation.
The familiar Windows XP loading screen should be showing up. If you are asked to resize the screen, click OK and then Yes. If all went well, the VM's window should become larger. If not, don't worry, we'll be changing it later anyway.
Depending on your edition of Windows XP and how old the CD is, another phase of the graphical installer may appear. Follow it until you get to a working desktop. There should be some music, and the little help icon in the lower-right should also be making sounds. Note: If you don't hear any sound, or if the sound comes out garbled, you'll need to tweak your VM audio settings later. Finish the graphical installation first.
Whenever you do get to your first working desktop screen, as with any other Windows installation, update the operating system before proceeding!