Are you talking about a Windows 7 Home disk or computer? If the OS was a Retail version, you can move the license to another computer as long as the other one is wiped. If it's an OEM version that came with the computer, you can't.
As to how to do it, use the Windows 7 disk and run the setup on the other system, you can chose to either wipe it all and just have Windows 7 or do a dual boot with Windows 7 and XP on the same system. You can't upgrade XP to 7, but you don't need to format the drive again so you'd be able to keep your files.