There are two main reasons that could cause this:
a.. The folder is not in your user profile (Drive_letter:\Documents and
Settings\User_name, where Drive_letter is the drive on which Windows XP is
installed and User_name is your user name). The Make this folder private
option is available only for files in your user profile (the My Documents
folder and its subfolders, and the Cookies, Desktop, Start Menu, or
Favorites folders).
a.. The Windows folder is located on a drive that is formatted with the FAT
or FAT32 file systems. The Make this folder private option requires the NTFS
file system.
http://support.microsoft.com/default.aspx?scid=kb;[LN];307286
If the drive is formatted with NTFS and you want to configure more specific
security settings (or put security on folders outside of C:\DOCUMENTS AND
SETTINGS) then you can either boot to Safe mode which will allow the
Security tab to show up, or disable 'Simple File Sharing'. See here:
http://support.microsoft.com/default.aspx?scid=kb;[LN];304040 You can only
disable 'Simple File Sharing' if you have XP Professional. XP Home cannot
do it.
How to boot to Safe Mode:
http://support.microsoft.com/default.aspx?kbid=315222