As a hard drive is used, particularly when nearly full, it begins having to break files into pieces to fit them into the remaining empty spaces. They get reassembled when you need them, but this takes time, slowing your computer down.
Defragmenting is a process that reorganizes your hard drive so that files don't have to be broken into as many pieces in order to fit.
In order to work on Windows XP 64-bit, you will need to install the Microsoft hotfix found here