You can NOT perform an in-place upgrade from XP to Win7.
Because of this, you will need to BACKUP all of your important pictures, documents, music, mail, favorites, etc., etc. to another Hard Drive, DVD, USB Memory Stick or Network Drive / Place for recovery later after the Win7 Installation.
A suggestion would be to ALSO make a Complete Image of your XP hard drive and store it too just in case you have issues with the Win7 installation.
Next you should "nuke" the XP HD with a Pre-made CD.
The final steps would be a Clean Install of Win7 using your Installation DVD and recovering your important data from your Backup storage device.
As a tip, download and read the Free standard manual to become familiar with Win7 before installation.