Windows XP Mode for Windows 7 Release Candidate available
Built using Microsoft's Virtual PC product, Windows XP Mode actually runs a copy of Windows XP inside your Windows 7 installation. You can install older programs on the Windows XP virtual machine, allowing them to run in a more familiar environment. This is great for older games or programs that aren't yet compatible with Windows 7. Also, Windows XP Mode has new integration features that allow you to interact with the Windows XP system and applications more seamlessly than other virtualization packages provide.
The major potential downside to Windows XP Mode and the latest release candidate of Virtual PC is that they require your processor to support hardware virtualization to run. This means that, while Windows 7's performance enhancements will allow you to get the most out of older computers, processors that are more than a few years old won't be able to run Windows XP Mode. Microsoft provides a helpful page with instructions to determine whether your computer supports hardware virtualization, and in turn, whether you'll be able to run that old game from the MS-DOS days on your Windows 7 machine.
More details and changes from the last beta version of Windows XP Mode are available on the Windows 7 Team Blog.