NTFS is the filesystem used by Windows NT (funnily enough) and FAT32 is used by Windows 95OSR2/3, 98 and ME.
Luckily, Windows 2000/XP can understand both, however NTFS is the only FS which uses Metadata for files, with extended attributes such as security and the like. (And other data which is obviously required for Sharing Folders).
To convert a drive from FAT32 to NTFS (which is a relatively safe process, assuming the power doesn't go off):
code:
convert c: /FS:NTFS
If this is your main drive, then you'll have to reboot for the conversion to take place.
Also note that a converted drive will not be as tidy (a full defrag should sort this, though) as a flat-formatted NTFS drive, so if possible it's better just to reinstall the system and choose NTFS during Windows XP installation.