First, disable your anti-virus software (if you've actually got such software installed at the moment).
Then:
"Insert the disc into your computer with your current version of Windows XP running, and the Software Update Installation Wizard should automatically appear. If this wizard doesn't appear, click Start, double-click My Computer, right-click your CD or DVD drive, and then click AutoPlay.
On the Windows XP Service Pack 3 page, click Next.
Follow the instructions that appear on your screen.
After the installation is complete, click Finish to restart your computer.
If you disabled your antivirus software, enable it again"
Sourced from:
http://windows.microsoft.com/en-GB/windows/help/learn-how-to-install-windows-xp-service-pack-3-sp3