The onscreen instructions are referring to the boot up with the XP installation disk to the recovery console by pressing R instead of the usual install now by pressing enter option. The system file would then be manually expanded from the I386 folder on the XP cd to the sub folder it's generally installed to.
Once at the recovery console you can attempt to see a fresh copy expanded to the destination folder by first cnanging drives from the C: to the optical drive like D: by simply typing D at the prompt if D and pressing the enter key. Once on the optical drive's prompt you would type in: "expand syste_" not "expand system" since all system files are compressed into CAB type archive files.
The full command would likely be "D:\expand syste_ C:\Windows>system32>config\" followed by pressing the enter key. If you are unable to manually expand the file the next step would likely be a repair install in order to preserve the current copy of Windows will seeing the repair made.
How to Perform a Windows XP Repair Install
The possibility of using the system file checker at the recovery console is once you are logged on as administrator you can use the "chkdsk" command there to perform a full scan of the hard drive as well as all system files. The chkdsk command is more thorough then simply typing "sfc /scannow" like you would if Windows could load and you choose the Start>Run command line to run the tool or schedule that for the next startup.