OEM generally refers to "Original Equipment Manufacturer"
OEM products usually are bare producs (ie: CD-Rom drive with no retail box or anything), and are suited generally for those who build computers...and those who like to save cash. The drawback of most OEM equipment is a shorter warranty period, minimal to no tech support, no manuals, and no retail frills.
OEM Windows XP is exactly the same as the retail version, but supposed to be for computer manufacturers, although end users can buy copies, usually having to buy hardware with it (although some places don't require a hardware sale). What you get with the OEM XP is pretty much just the CD, registration code, and pamphlet. NO Microsoft tech support is included with an OEM Microsoft OS.
So, if you don't need the tech support, retail box, or manual, then OEM is just fine.