The PATH environment variable is typically something that the operating system uses to find executable files.
The CLASSPATH environment variable is typically something that implementations of the Java Virtual Machine (JVM) use to find Java class files. Examples are classes12.zip etc.,
To set the variables permanently on XP
Go to your control panel -> Performance and maintainence -> System
When a window opens up go to advanced -> Environment variables
Under System variables you will find PATH.
Add your jdk bin directory to it.
save your settings and
you should be ready to go.
Good luck.