If you're upgrading to Windows 8 or even Windows 7 Home, Windows XP Mode is not included. If you really want to use Windows XP in a virtual machine, you'll have to get a boxed copy of Windows XP -- if you have an old one, that will work -- and install it inside a virtual machine. You don't have to buy virtual machine software -- the free VirtualBox and VMware Player will both work fine.
Virtual machines will allow you to run most types of Windows XP applications, but not all of them. If an application needs direct access to a piece of hardware, it may not work.
Note that Microsoft is also ending support for Windows XP Mode and Windows XP in virtual machines on April 8, 2014. However, if you have to run Windows XP, running it in a virtual machine on a modern version of Windows is much more secure than running Windows XP as your primary operating system.
Let's say you have a trusty old Windows XP PC that works okay for browsing the web and you just don't want to buy a new PC or a new version of Windows. To stay secure, you can try installing Ubuntu Linux -- we have guides to ease the transition and make Ubuntu look like Windows 7 -- or even Lubuntu, a more lightweight version of Ubuntu. These completely free operating systems are designed to work well on older hardware, and will be supported with security patches for years to come. In fact, the city of Munich recently handed out Ubuntu discs to their citizens to help them sidestep the Windows XPocalypse threat.
If you're ready to upgrade to a new version of Windows but Windows 8 puts you off, you can still upgrade to Windows 7. It'll be supported until 2020. New copies of Windows 7 or 8 cost nearly $100, however, and they might not run on hardware from the XP era, so you could be better off just buying a new computer and getting a modern version of Windows included.
Sure, Microsoft just wants to sell you a new Windows license, but it has been 12 years. Even if you have to use Windows XP for a bit longer, you should really be making plans to move on. You don't have to go to Windows 8, but you can't stay here -- not for long, at least.