"Windows XP Service Pack 2 (SP2), now in Beta testing, includes the new Windows Firewall, previously known as the Internet Connection Firewall (ICF). Windows Firewall is a stateful host-based firewall that drops all unsolicited incoming traffic that does not correspond to either traffic sent in response to a request of the computer (solicited traffic) or unsolicited traffic that has been specified as allowed (excepted traffic). Windows Firewall provides a level of protection from malicious users and programs that rely on unsolicited incoming traffic to attack computers on a network."
Full Configuration Article:
Microsoft Technet