Yes, assuming your system's BIOS allows you to boot from CD (most modern systems do), that's exactly how you would install an operating system on a freshly formatted hard drive. You can make sure your BIOS supports booting from CD by going into the Setup screens when you start your computer.

Before you reformat the drive, set your BIOS to boot from CD first, then insert the Windows XP disk and restart. If it boots from the CD, you're good to go.

One more important point: If you have the Windows XP upgrade CDROM, and not the full version, you will not be able to install XP. I ran into this problem once when doing a reinstall, and the only way I could figure out was to follow the original install/upgrade path. That meant installing Windows 3.1 (from floppy disks!), then upgrading to Windows 98, then upgrading to Windows XP. What a nightmare that was.