The Parts
To begin with, you will need a computer that is actually capable of changing options in BIOS. Pre built machines such as Dell, Emachines etc. generally do not allow BIOS settings to be changed.
All processors are capable of overclocking, just some respond to tweaking better than others. For example, Palomino core chips will not overclock well at all, wheras Barton cores are very good. Without doubt the best XP overclockers are the Mobile chips. These are intended for use in laptops, and so have an unlocked multiplier to allow the system to scale the speed of the chip in relation to power requirements, thus conserving battery life. The chips are also able to run at lower voltages (meaning less heat dissipation) than their desktop counterparts. All of which adds up to great overclocking potential.
The motherboard plays a huge part in overclocking, as it controls and determines the frequency all the components operate at. The best overclocking motherboards use Nvidias "Nforce2" chipset. These have locks on the PCI/AGP bus frequencies, which other chipsets (VIA, SiS) do not usually have. I won't go into why a lock is necessary, just understand you don't want the PCI/AGP frequencies to change.
RAM is another big part of overclocking. The RAM has to be able to keep up with the CPU for a good overclock, as XP chips seem to like 1:1 RAM/CPU frequency. The speeds of RAM are set at typical CPU operating speeds, ie.
PC2100 = 133MHz
PC2700 = 166MHz
PC3200 = 200Mhz
PC3200 is the standard for overclocking XP chips, although lower rated RAM can sometimes surprise and reach decent speeds.
Be aware "Value RAM" will not usually overclock as well as performance RAM. Logical really...
What hardware do you have?
To find out if you can overclock, there are a couple of things to do. Firstly, reboot your computer and enter BIOS. To do this repeatedly press DEL (can be others depending on your system, check the manual) until a blue screen appears with lots of menus on it. Generally the mouse will not be functional, so you have to navigate with the arrow keys, also look at the bottom of the screen to see what other buttons do. Navigate around BIOS, looking for options like
CPU Voltage/Vcore
CPU Multiplier
CPU Frequency/FSB
Memory Timings (CAS, CAS to RAS etc.)
DO not change any settings yet, just look to see if they can be changed at all. If you built your PC, or did not buy from retail outlets such as Dell then more than likely you can change the settings.
OK, so you can change BIOS settings. Now download CPU-Z and take a look at what hardware you actually have. You are interested in the CPU name, the Motherboard chipset and the RAM speed. If you see Barton, Thoroughbred or Thorton anywhere on the CPU tab then your in luck. Couple that with Nforce on the Motherboard tab and PC3200 on the RAM tab and we're in business. If you don't have 3200 RAM don't worry, as your whatever RAM you have can be overclocked (even if its only a small amount), but it will be a major factor in limiting your overclock potential.
Other points before overclocking
Heat is the enemy! If you have stock cooling, then overclocking A) won't get far and B) is not advised! Upgrading the cooling is about the cheapest thing you can do with a sktA machine. ThermalTakes Volcano12 is recommended as a budget option. For people with more money to throw around then a Thermalright SLK-947 or SI-97 will be excellent. Note the ThermalRights are heatsinks only, and do not come with a fan, this needs to be purchased separatly. High CFM is essential - Panaflo, YS-Tech, Vantec and Delta all make good fans. Try and balance CFM with noise depending on your needs.
Power - a poor power supply (PSU) will kill an overclock. As a general rule - True 400W minimum and 25Amps+ on the 12V rail. "True 400W" means that the lowest power supplied is 400W, and peak can be anything. XMS has a PSU rated at 600W, but it puts out just ~280W usually, the 600W rating is its peak power. Less reputable manufacturers list Peak wattage wheras good makers list the units true power capability. Good manufacturers are Antec, Enermax, PC Power and Cooling, Fortron, OCZ, and for a cheap option the Hiper TypeR is excellent!
The process of overclocking
Basics - The operating speed of the computer is determined by FSB x multiplier - so 166 FSB x 12 multiplier = 1992MHz and so on.
If at any time the computer just fails to start at all, you have pushed too far too fast, and need to clear CMOS. This can be done by unplugging the power lead, pressing the ON button to discharge capacitors, removing the BIOS battery from the motherboard for 2-3 minutes, then replacing the battery and powering on. A lot of motherboards have a jumper that you can just switch over to clear CMOS instead, check your motherboard manual for its location. Clearing CMOS simply resets everything in BIOS to its default (original) settings, so you just start again or go to the last good settings you remember.
Reboot and go back into BIOS using the same method as before. Locate the options you should have checked for already - the CPU Frquency/FSB, the CPU voltage and the multiplier. The multi only applies to mobile chips, as it is locked on desktop CPUs. All of these options should be in the same section, especially if you have a DFI, Asus or Abit board.
What you need to do is raise the FSB in small increments (2 or 3 at a time), then save the changes (usually F10) and reboot. Keep going in this cycle until the OS fails to load, or freezes/crashes after the welcome screen. This means the system is unstable, and needs more juice. This is where the Vcore comes in. Raise the voltage to the CPU by 1 step, the smallest amount your motherboard/BIOS will allow. Save changes and see if the computer works properly, if not then reboot and raise the voltage a little more. Just because Windows has loaded does not mean its stable! The best way to test whether its stable is to do what you want the computer to do, if it does not crash then its stable. For me, I play games, so a few hours of CS:S is stable enough for me.
Do not go above 1.85 Vcore on good air cooling - always keep an eye on your temperatures!
The load temerature is the most important, this is where the CPU is 100% in use and at its hottest. XP CPUs can handle up to 85-90C, but running that hot will reduce their life. Try to keep full load temperatures below 60C at most, ideally less than 50C. MBM5 is a good temperature monitoring program, but nothing can beat a probe sat next to the core for accuracy. The temperature should also be displayed in BIOS, but its hard to get 100% load in there.
For mobile users - The multiplier is adjustable for you, set it to 11 or 11.5 for the best results, but just experiment to see what works better for you.
Pictorial of me overclocking
1) Enter BIOS

2) Increase FSB by 3

3) Save changes

4) Windows loads

5) Running Super PI to 1m digits to check for initial stability

6) Super PI passes

7) Reboot and up the speed (I'm just jumping ahead, you keep going in small steps)

8) PI passes again, reboot

9) Keep FSB going and increase Vcore as needed until;
A - Your load temperature is too high
B - You have reached 1.85 Vcore
c - The machine is unstable/will not boot no matter how many volts you put through it.
10) Once you think you've hit that wall, further test for stability, I'm going to play CS, you do whatever you want to be able to do
To begin with, you will need a computer that is actually capable of changing options in BIOS. Pre built machines such as Dell, Emachines etc. generally do not allow BIOS settings to be changed.
All processors are capable of overclocking, just some respond to tweaking better than others. For example, Palomino core chips will not overclock well at all, wheras Barton cores are very good. Without doubt the best XP overclockers are the Mobile chips. These are intended for use in laptops, and so have an unlocked multiplier to allow the system to scale the speed of the chip in relation to power requirements, thus conserving battery life. The chips are also able to run at lower voltages (meaning less heat dissipation) than their desktop counterparts. All of which adds up to great overclocking potential.
The motherboard plays a huge part in overclocking, as it controls and determines the frequency all the components operate at. The best overclocking motherboards use Nvidias "Nforce2" chipset. These have locks on the PCI/AGP bus frequencies, which other chipsets (VIA, SiS) do not usually have. I won't go into why a lock is necessary, just understand you don't want the PCI/AGP frequencies to change.
RAM is another big part of overclocking. The RAM has to be able to keep up with the CPU for a good overclock, as XP chips seem to like 1:1 RAM/CPU frequency. The speeds of RAM are set at typical CPU operating speeds, ie.
PC2100 = 133MHz
PC2700 = 166MHz
PC3200 = 200Mhz
PC3200 is the standard for overclocking XP chips, although lower rated RAM can sometimes surprise and reach decent speeds.
Be aware "Value RAM" will not usually overclock as well as performance RAM. Logical really...

What hardware do you have?
To find out if you can overclock, there are a couple of things to do. Firstly, reboot your computer and enter BIOS. To do this repeatedly press DEL (can be others depending on your system, check the manual) until a blue screen appears with lots of menus on it. Generally the mouse will not be functional, so you have to navigate with the arrow keys, also look at the bottom of the screen to see what other buttons do. Navigate around BIOS, looking for options like
CPU Voltage/Vcore
CPU Multiplier
CPU Frequency/FSB
Memory Timings (CAS, CAS to RAS etc.)
DO not change any settings yet, just look to see if they can be changed at all. If you built your PC, or did not buy from retail outlets such as Dell then more than likely you can change the settings.
OK, so you can change BIOS settings. Now download CPU-Z and take a look at what hardware you actually have. You are interested in the CPU name, the Motherboard chipset and the RAM speed. If you see Barton, Thoroughbred or Thorton anywhere on the CPU tab then your in luck. Couple that with Nforce on the Motherboard tab and PC3200 on the RAM tab and we're in business. If you don't have 3200 RAM don't worry, as your whatever RAM you have can be overclocked (even if its only a small amount), but it will be a major factor in limiting your overclock potential.
Other points before overclocking
Heat is the enemy! If you have stock cooling, then overclocking A) won't get far and B) is not advised! Upgrading the cooling is about the cheapest thing you can do with a sktA machine. ThermalTakes Volcano12 is recommended as a budget option. For people with more money to throw around then a Thermalright SLK-947 or SI-97 will be excellent. Note the ThermalRights are heatsinks only, and do not come with a fan, this needs to be purchased separatly. High CFM is essential - Panaflo, YS-Tech, Vantec and Delta all make good fans. Try and balance CFM with noise depending on your needs.
Power - a poor power supply (PSU) will kill an overclock. As a general rule - True 400W minimum and 25Amps+ on the 12V rail. "True 400W" means that the lowest power supplied is 400W, and peak can be anything. XMS has a PSU rated at 600W, but it puts out just ~280W usually, the 600W rating is its peak power. Less reputable manufacturers list Peak wattage wheras good makers list the units true power capability. Good manufacturers are Antec, Enermax, PC Power and Cooling, Fortron, OCZ, and for a cheap option the Hiper TypeR is excellent!

The process of overclocking
Basics - The operating speed of the computer is determined by FSB x multiplier - so 166 FSB x 12 multiplier = 1992MHz and so on.
If at any time the computer just fails to start at all, you have pushed too far too fast, and need to clear CMOS. This can be done by unplugging the power lead, pressing the ON button to discharge capacitors, removing the BIOS battery from the motherboard for 2-3 minutes, then replacing the battery and powering on. A lot of motherboards have a jumper that you can just switch over to clear CMOS instead, check your motherboard manual for its location. Clearing CMOS simply resets everything in BIOS to its default (original) settings, so you just start again or go to the last good settings you remember.
Reboot and go back into BIOS using the same method as before. Locate the options you should have checked for already - the CPU Frquency/FSB, the CPU voltage and the multiplier. The multi only applies to mobile chips, as it is locked on desktop CPUs. All of these options should be in the same section, especially if you have a DFI, Asus or Abit board.
What you need to do is raise the FSB in small increments (2 or 3 at a time), then save the changes (usually F10) and reboot. Keep going in this cycle until the OS fails to load, or freezes/crashes after the welcome screen. This means the system is unstable, and needs more juice. This is where the Vcore comes in. Raise the voltage to the CPU by 1 step, the smallest amount your motherboard/BIOS will allow. Save changes and see if the computer works properly, if not then reboot and raise the voltage a little more. Just because Windows has loaded does not mean its stable! The best way to test whether its stable is to do what you want the computer to do, if it does not crash then its stable. For me, I play games, so a few hours of CS:S is stable enough for me.
Do not go above 1.85 Vcore on good air cooling - always keep an eye on your temperatures!
The load temerature is the most important, this is where the CPU is 100% in use and at its hottest. XP CPUs can handle up to 85-90C, but running that hot will reduce their life. Try to keep full load temperatures below 60C at most, ideally less than 50C. MBM5 is a good temperature monitoring program, but nothing can beat a probe sat next to the core for accuracy. The temperature should also be displayed in BIOS, but its hard to get 100% load in there.
For mobile users - The multiplier is adjustable for you, set it to 11 or 11.5 for the best results, but just experiment to see what works better for you.
Pictorial of me overclocking
1) Enter BIOS

2) Increase FSB by 3

3) Save changes

4) Windows loads

5) Running Super PI to 1m digits to check for initial stability

6) Super PI passes

7) Reboot and up the speed (I'm just jumping ahead, you keep going in small steps)

8) PI passes again, reboot

9) Keep FSB going and increase Vcore as needed until;
A - Your load temperature is too high
B - You have reached 1.85 Vcore
c - The machine is unstable/will not boot no matter how many volts you put through it.
10) Once you think you've hit that wall, further test for stability, I'm going to play CS, you do whatever you want to be able to do