Windows XP Embedded comes with the Windows Embedded Studio offering several powerful tools which help you creating your Windows XP Embedded image.

The Target Designer is the main tool which is used to configure and build the Windows XP Embedded image.
It offers several important functionality to support you to build your image such as dependency and conflict checks which ensure that the built image will start up. It ships with many design templates offering standard designs for target applications such as Set-Top Boxes, Internet Terminal, Thin-Client, etc.
Finally Target Designer will build the image and copy all the needed binaries and the configuration to a target directory. This image output is ready to deploy to a target device.
Component Designer allows you to build custom components for Windows XP Embedded. This is a great tool if you need to have addtional drivers for your hardware which do not ship per default with XP Embedded. It offers an easy INF import tool minimizing the work needed to create the component.
The Component Designer also allows to build a custom component for your application and other scenarios where you need to add specific files, registry entries, etc.
The created component can then be imported into the component database using the Component Database Manager.
After that it can be used in Target Designer like any other component.
The Component Database Manager allows you to view, add, update and remove components from the SQL database containing all the XP Embedded components.