The 3 laptops I ve had with Restore Disks have done just that - formatted the disk and reinstalled the basic XP but wiping everything else you ve added. But my Compaq had (?) 4 disks and one of those had the XP software on it so it was possible to run that alone, but only on the Compaq, and repair or reinstall XP without formatting the drive.
Is there a read me file on the disk or do you have the handbook? Or take the risk of running the disk and exiting before making any changes?
Then again if the machine is being sold maybe returning it to a newly formatted state may be a good idea to protect your/your family's files that maybe inadvertantly left on it.
PW