Because the laptop hard disk isn't bootable. All it contains are the Windows Setup files.
It can be done without a CD-ROM drive at all, but it's highly recommended that you get the DVD drive replaced.
Here's one way of doing it:
With the laptop hard disk connected to a machine that has a working CD drive, copy the entire contents of the i386 folder from the CD to a folder on the hard disk called i386. Now, reboot the machine, and start installing Windows on the laptop hard disk (by booting from the Windows XP CD).
When Setup reaches the end of the first part of Setup (blue, text-mode part), it'll reboot the machine. Immediately power-off and remove the laptop disk, and put this back into the laptop. Setup should now resume in graphical-mode, and it should be okay.
If you get asked for the Windows CD during installation, enter "c:\i386" as the location for the Setup files (you can type it in), and it should go through.
Good luck!