On modern consoles like the XBox, they make actually be installing some things to the hard drive, just behind the scenes.
Installation generally just pushes files and config to the hard drive of your pc. Some of that is probably a hang up of floppy disk and cd-rom days - you just couldnt get information of the disk fast enough to use in a game.
I imagine the big reason that consoles don't have to do it is because they have Operating Systems optimised for one task, whereas your PC has to do many different things. Kind-of like a sports car being much faster than your family car. But you can't get you groceries home
