Sysprep is really for corporate environments in creating an image for automated Windows installations that allows unique SIDs to be created. This is critical in Active Directory domains as logins and SIDs are tied together. Outside of Active directory, sysprep is not extremely useful.
If you want to use sysprep at home, there's really no point as it won't give you any real benefits, unless you run AD at home (doubtful). Sysprep is meant for system administrators, not end-users.
Wikipedia has a shorter, succint explaination here (link).
Desktop deployment is typically
performed via disk cloning
applications. Sysprep can be used to
prepare an operating system for disk
cloning and restoration via a disk
image. Windows operating system
installations include many unique
elements per installation that need to
be "generalized" before capturing and
deploying a disk image to multiple
Some of these elements include:
- Computer name
- Security Identifier (SID)
- Driver Cache
Sysprep seeks to solve these issues by
allowing for the generation of new
computer names, unique SIDs, and
custom driver cache databases during
the Sysprep process. Administrators
can use tools such as SetupMgr.exe
(Windows XP) or System Image Manager
(Windows Vista) to generate answer
files that Sysprep will process on new
Edit: Essentially, you cannot clone one machine (system disk) and re-image numerous other computers as the SIDs will all be the same. Sysprep allows admins to dynamically generate unique SIDs as part of the sysprep deployment, which is something a simple disk-imaging tool cannot do. If you have more than 2 computers that need to be prepped for a Windows Active Directory domain (or possibly workgroup), sysprep is the way to go.
You didn't specify why you were looking at sysprep or to what ends you hoped to accomplish. Could you elaborate on why sysprep is of interest to you?