32-bit and 64-bit refers to the chunk-size of the data used by the operating system. Most operating systems have been 32-bit for a long time now, since the introduction of Intel’s 386 processor, which was the first commercial 32-bit-ready microprocessor. (Previously, Windows and DOS used 16-bit chunks for sending the data around the computer.)
Now, there are a few 64-bit-compatible processors available for home computers, including AMD’s Athlon 64, and Intel’s Pentium D and Core processors. (Unlike earlier server-level 64-bit processors, these new consumer-level processors can also run 32-bit applications and operating systems, which makes them a good transitional processor.) For the full 64-bit experience, however, both the operating system and the hardware have to be running in 64-bit mode.
A while back we tested the 64-bit version of Windows XP and were less than impressed with the overall experience, largely because of the overwhelming number of applications that weren’t compatible with a 64-bit operating system (anti-virus being one of the key omissions). Since that point, quite a number of other applications have become 64-bit compatible, but if you’re planning to make the switch, don’t count on it being a seamless transition just yet. Many games, utilities and other essential applications are still not quite ready for 64-bit.