Is there space available to add another hard-disk drive? Your current hard disk is probably mounted in a small metal cage or rack inside the machine. Make sure there is space available in the cage for another drive. If not, adding an external drive is an option.
An external drive connects to your computer through either a USB 2.0 connection or a FireWire connection, so your computer needs to have USB 2.0 or FireWire connectors. Once you buy the drive, all you have to do is connect it and fire up your computer. The drive will come with configuration instructions, but on Windows XP it will likely be plug-and-play. You can start saving files on your new drive immediately.
There is one big advantage to an external drive: you can plug it into multiple machines and move files around. You can take it with you anywhere you go. The only real disadvantage is that it will be slower than an internal drive. If it takes a minute to copy a gigabyte of data on an internal drive, it might take two minutes on an external drive. That may or may not be important depending on what you want to do. For most applications, the slower speed is irrelevant.