Microsoft announced its Genuine Advantage software initiative in March 2006. It's designed as part of the company's wider assault on software piracy (another infamous part of this fight, Product Activation, won fame and fortune for Microsoft went XP was released in late 2001). The Genuine Advantage initiative is comprised of three parts: Education (customers should understand the risks of pirated software), Engineering (Microsoft's ongoing investment in anti-counterfeiting technologies and product features), and Enforcement (Microsoft is helping law enforcement agencies go after the world's worst software pirates).
WGA is a component of the Engineering part of that unholy triumvirate. It's a bit of software that gets installed on Windows XP (it's part of Windows Vista right out of the gate, naturally) and is comprised of two components. The first, dubbed WGA Validation, determines whether the version of Windows on which its running is legitimate. The second component, WGA Notifications, displays annoying alerts on pirated Windows copies and provides a way for the user to pay for a legitimate copy of Windows.