It seems to me you need to do more investigating and reading, but for giggles I will explain it simplistically for you.
1) I'll start with this one, "What is the purpose behind or need of the 3 new switches in XP (factory, audit, and reseal)?" The reason for the switches has to do with the new ACTIVATION system Microsoft put in their OS. This is to help combat piracy. The activation key is made up from many different hardware codes among other things but that is a different topic.
2) "when and why you use the factory and reseal options" Use factory when you need to make a backup image of that machine. This will not affect the fact that the machine has or has not been "activated". For example you want to add hardware that caused the machine to crash during the installation of the OS(ie SCSI cards). You removed the SCSI card and did a good install now you use the factory option to clear out other drivers and restart the system hoping the SCSI card will now be accepted. You can do this with any drivers as well. This option is mostly used for ?TESTING? an image to be duplicated to multiple machines. But before you have your final image you must RESEAL.
Use the reseal (which can only be done 3 times) to reset the activation time period back to 30days. This will clear all system log files and remove all the minor drivers for the minisetup which will go through the hardware enumeration in which you will also have to supply the CD-key again when the system starts up.You must use the same Motherboard in all your systems for this to work. Different motherboards use different divers and HALs and may not be compatible so the system won?t even start?you just get a BSOD.
3)?What was I not able to do in Win 2k compared to sysprep in XP?? See answer number one?.that?s really the only difference the activation crap