Installing SP2 over SP1 is the only possible way to install SP2. As for differences between the two, SP1 was kernel security updates as is SP2. But as well as securtiy tweaks, SP2 comes with some new features (IE pop-up blocker, and a new 'security center', more Windows firewall options, and etc).

Summary: Much of it is changing behind the scenes files and trying to make XP more secure with a little bit of glitziness.