what is IME enabled

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yes I wonder answer for same question.

Windows update told me that I have to install update to resolve issue  which user unable to ise internet explorer 7 on computer running windows XP with IME enabled.

But what is IME and why enabled on my computer?

IME means Input Method Editor.  IMEs are used by Windows to assist in keyboard entry for different languages.  See http://windows.microsoft.com/en-us/windows-8/input-method-editors

If you do a Google or Bing search for the Microsoft KB article associated with the update, you'll probably find a bit more information.