Service Pack 1 for Windows XP (or Windows XP SP1 as its reputation has it) is an essential software upgrade for Windows XP. It patches up many large security holes adds new capabilities improves XP's built-in software and integrates most of the major security improvements XP saw from its release on. Also as you'd expect from such a key update to an operating system it's free.
For modern users the most understated yet useful feature that Service Pack 1 for Windows XP provides is USB 2.0. Compared to USB 1.1 2.0 provides huge speed improvements and compatibility with many devices that require that speed to best work (USB headphones for example). Combined with the right drivers SP1 makes Windows XP compatible with many many more peripherals in one sweep.
Odds are if you have an XP machine Service Pack 1 for Windows XP is already installed. But you should check to see if it is: doing so is fairly easy. And if it isn't what are you waiting for? SP1 provides security upgrades that an Internet user literally cannot go without and dozens of features besides. Combine it with Service Pack 2 as well of course and you're well on the way to having a solid XP machine!