"Formating" (or reformating) will completely erase all data from the hard drive (or partition) & setup a new file system (usually NTFS). Once the drive is formated, it can be used for file storage or Windows can be installed. Formating does NOT install Windows, it is a step that is taken to prepare the drive before Windows can be installed.
Why do you want to downgrade to an OS that's over 10 yrs old anyway? Did you check to see if XP device drivers are available for your laptop? Do you know how to install XP to a SATA hard drive? There are a few different methods that can be used but the best is to create a completely new XP disc with the SATA drivers slipstreamed into it. Do you think you can handle it?
How to Slipstream Your SATA Drivers Into a Windows XP Installation CD Using nLite