Wireshark shows duplicate IP address detected

I am assuming you're using "bridge-mode" for networking (your internal, virtual adapter is bridged to your host's physical adapter).

In any case (unless you explicitlly manually set them to the same address, which causes a lot of other problems), your guest (WinXP) machine will have a different MAC address than your host (CentOS). Due to bridge-mode, your host acts as an ethernet switch, and forwards packets to the guest.

So when an ARP broadcast comes, your host gets the packet and also forwards it to your guest machine. When packets for your host come, they are processed by your host's network stack. When packets for your guest come, the host forwards them to your guest, which then processes them as needed.

IP is a layer 3 protocol. It doesn't know anything about the physical media, it means that IP can travel through any media (for example: fiber optic, copper cable, air, etc).

IP relies on a layer below (layer 2) that manages the access to the media. In the case of ethernet each device is connected to a common media (copper cable) and then the device has to identify itself to let know the others it is there, and that identification is the MAC address.

Each device has a MAC address that is used by the layer 2 protocol to access the common copper cable and move frames from one device to the other. It seems to be enough to have communication, however layer 2 protocols doesn't scale well if you have hundreds of devices. Then it is needed a layer 3 protocol as IP.