Wipe computer like new

Hello,
Im trying to wipe my computer clean just as if it were new. I have the reinstallation CD Microsoft Windows Xp Home Edition Service Pack 2.

I tried to boot the computer with the disk in the drive. It gave me 3 options:
First one said if I wanted to reinstall windows than go press R or something.
The second asked me if I wanted to fix the the current windows XP (reconfigure) or something like that the press another button.
The third option just said press enter to cancel the whole installation.

I tried the second one and then it asked me to enter one digit or letter(?) to decide where to put windows xp. I was confused so I just pushed enter and it just restarted like nothing ever happened.

Basically, I have no Idea what to do. I have the windows xp dell disk like i said. but my computer isnt the same as it used to be. Its slow and sluggish. I need directions. Directions for an idiot with computers would be great. haha.

Anyway, thank you very much and I await an intelligent response.
Thanks again....