When two computers are "networked" with a crossover cable, in order to communicate each needs to have a suitable IP address.
In general, there are two ways the network adapters (Local Area Connections) can get their IP addresses:
(1) If you enable "Internet Connection Sharing" on the actual Internet Connection (modem connection) in the "Host" PC, this will automatically configure the Local Area Connection with the fixed IP address of 192.168.0.1
(screenshot click here )
The "Client" PC's Local Area Connection is set to get its IP address automatically and will get an address from the "Host" PC in the same 192.168.0.xxx range.
To enable “Internet Connection Sharing” in Windows XP, open the Network Connections folder, right click the actual internet connection (modem connection), select Properties and then the Advanced tab. Tick the box “Allow other network users to connect through this computer’s Internet connection”.
(2) If you don't want or need to use "Internet Connection Sharing", the Local Area Connections need to be given an IP address manually. To do this, open the Network Connections folder, right click the Local Area Connection and select Properties. Highlight the "Internet Protocol (TCP/IP)" entry and click the Properties button. In the box that opens, for the first PC enter the IP address 192.168.0.1 and Subnet Mask 255.255.255.0 For the second PC, enter the IP address 192.168.0.2 and the *SAME* Subnet Mask of 255.255.255.0
If IP addresses are not set up in one of these ways, Windows will allocate an APIPA address (Automatic Private IP Addressing) in the 169.254.xxx.xxx range, you will get the "Limited or No Connectivity" error and the two computers *may* be unable to communicate.
If you are running any firewall software, this may have to be configured to allow access to the networked computers.