A boot disk will allow you to boot off of a disk instead of your hard drive. This disk can be used to fix issues as well as can be used to help load MS-DOS games (old school stuff). Use this site to help you create a boot disk in Windows XP:
You don't mess with BIOS usually. Default settings will work or should work fine. They are usually used to change boot order, enable or disable motherboard specific features, overclocking. CD ROM are very easy to install. You just slide that in the drive bay from the outside of the case, plug the power cord and data cable in. It usually comes with a CD if you buy retail. They are generally software burning programs for DVD and CDs, and drivers too.
Here's a simple guide from Seagate on how to install a SATA hard drive:
It proves very helpful. Windows XP Pro OEM is usually combined with hardware you purchase. Plain Windows XP Pro are usually stand alone retail full or retail upgrade versions.