"XP Compatibility Mode" is not "Windows XP Mode". Windows XP Mode is an actual WinXP virtual machine. You double-click it, and it boots a copy of XP, in a window. You then install your game inside the XP window.
The difference is that "Compatibility Mode" tries to emulate XP's behaviours, in Win7. "XP Mode" is an actual full copy of XP. No emulation, it's really XP. It's the same as installing VMWare, VirtualBox, or Xen, and running XP inside a manually-created VM, except Microsoft has already done all the work for you.
And that's only available in Win7 Pro or Ultimate.
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The difference is that "Compatibility Mode" tries to emulate XP's behaviours, in Win7. "XP Mode" is an actual full copy of XP. No emulation, it's really XP. It's the same as installing VMWare, VirtualBox, or Xen, and running XP inside a manually-created VM, except Microsoft has already done all the work for you.
And that's only available in Win7 Pro or Ultimate.