first install the character sets to view / read chinese (windows XP):
control panel > Regional and Language Settings > languages tab > "install files for East Asian languages". may need the Windows CD in order to install.
secondly set up an Input Method or way to toggle between languages wanted to type (winXP):
control panel > Regional and Language Settings > Languages tab > in "Text services and input languages" area, click details button.
under details settings tab > Add > select Chinese Simplified or Traditional
this should toggle your input language on/off with CTRL + Space and switch languages with Lshift. you can change the toggle functions.
An additional IME which works better than the stock windows version is google's pinyin input: http://www.google.com/intl/zh-CN/ime/pinyin/