They track the computers you install it on per CD key by taking a "snapshot" of your computer config. If it changes drastically they will make you call and have you explain what changes. I have my computer with the config below at the bottom and I installed it on my dads Intel celeron 700mhz with 128mb ram and when I went to activate it the activation wizard made me call a 1-800 number and talk to a microsoft rep. they asked Q:why are you activating it today A: I had to format my computer because of viruses. Q: is this the first time. A: No. Q: Do you have it installed on any other computer A: NO. after that they will give you new installation ID to activate it. But if you want to get all legal about it you do have the right to install it on more then one computer if it is only running at one instance at a time. This is the excerpt from the EULA from WIN XP.
1. GRANT OF LICENSE. Microsoft grants you the following
rights provided that you comply with all terms and
conditions of this EULA:
1.1 Installation and use. You may install, use, access,
display and run one copy of the Software on a single computer,
such as a workstation, terminal or other device ("Workstation
Computer"). The Software may not be used by MORE THAN ONE
PROCESSOR AT ANY ONE TIME on any single Workstation Computer.