Beyond what rifleman said, here are some additional notes:
When you join a domain, you are under the jurisdiction of that domain. They
can set up rules and policies that you must follow as a member of that
domain. Your authentication is handled centrally, so talking with other
machines becomes much easier, as does accessing resources that have limited
access.
You can also join a workgroup and authenticate to a domain - you do this by
entering the credentials in the Manage Network Passwords section of the User
Manager. This is the equivalent of what you saw in Win98 - you weren't
actually joining a domain, you were just authenticating to it.
Typically, if you have a domain, you want to join it. In many cases, you
have to because the company dictates it. The point of the domain is to be
joined. A workgroup is more of a home user thing, where you typically don't
have a Windows 2000 or Windows 2003 server running as a domain controller.
(Except in mine, of course, but I am far from the norm.)
--
Chris Jackson
Software Engineer
Microsoft MVP
Windows XP Associate Expert