Applying a bit to the heatsink and then "cleaning that off" will help fill up any pores and voids left in the heasink surface. Probably doesn't hurt, but it's pretty wasteful, unless you can "scrape" off the excess and reuse it.
Here's the lowdown on applying thermal grease: it's usually slightly capacitive or conductive (or both), so you want to keep it off of any resistors or "bridges" that are exposed around the core of your CPU. In the case of your AMD XP processor, this is especially important, since it has several of those types of things exposed.
The logic behind applying to the heatsink and not the CPU is that it's easier to apply a thin layer to the bottom of the heatsink, and if you mess up (don't know how, but...) you can always clean it easily and try again. When you apply thermal gel directly to the core, you run the risk of either (A) not spreading it thin enough and having too much on there, resulting in a lot of "squeeze out" that, if you're unlucky, could touch something sensitive and cause problems, or (B) in the process of trying to spread out a thin layer, you could "scrape" some excess off on the edges of the core, resulting in a buildup around the core that is difficult to fully clean up, even with Acetone, and could cause the same problems as the excess "squeeze out."
The logic behind applying to the core instead of the heatsink is pretty simple: How do you know where the core will touch the heatsink until it's actually in place? The result is that you have to cover a much larger area on the heatsink to make sure you "get the right spot," and in turn waste a lot of thermal compound. By applying directly to the core, you use a very small amount of compound, and one tube lasts forever.
So long as you are careful, use the thermal compound sparingly, and work from the center of the core to the edges, it is perfectly safe to apply directly to the core. It doesn't waste as much gel, and in the long run will not be as messy.
