MacFuse is a program that allows various extensions to be installed. Think of it as a middleman between Mac OS X and various programs you want to install. So in this case, by installing MacFuse, you can then install NTFS-3G.
NTFS-3G allows your Mac to have read/write access to NTFS hard drives. By default, Mac OS X can only read the data from NTFS -- it can't change (or "write") to it. So because your Windows XP partition is formatted as NTFS, you're unable to change the icon. But by installing NTFS-3G, it will permit Mac OS X to have write access to the XP partition, thus allowing you to change the icon.