Many parts of the system can be overclocked, but the processor is the most common. Processors are designed to run at different speeds, just like your other hardware. This way, it can work with a variety of systems. Besides, chips are often labeled slightly lower than their actual speed so that the manufacturer can guarantee it will work at that speed.
The actual speed of the processor is controlled by jumper settings on the motherboard. These jumpers control the bus speed and the processor speed. The reason this is built into motherboards is so one board can operate a number of different processors.
Since system speed is controlled by jumpers on the motherboard, you change the jumper settings on the board and make it think it has a faster processor. For example, if you have a Pentium-200 on a motherboard, you change the settings to make the board think you are running the next fastest Pentium, you could try 233MHz if you're brave. This works because the chip does not have an inherent speed. It accepts the speed given to it by the motherboard. If you're lucky, this will work. If it doesn't work, you may have periodic errors and crashes, or, if overclocked too much, you could damage the chip. A lot of times, you can add extra cooling to the chip to increase the chances of a successful overclocking.
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