You ask "what is service pack 3 and do you need it"
Well Microsoft release regular updates to fix individual problems, these are what you download each week. These files are usually fairly small.
But after a number of months (or even years) they reach the stage where a person who installs Windows XP from scratch has to download hundreds of small fixes.
So what they do is pack all these small fixes into one large fix that they call a "service pack".
Rather than downloading hundreds of small files you have to download one large service pack.
We have already had service pack 1 for XP, and service pack 2 for XP came out about 3 years ago.
more........