The "dedicated" memory virtual graphics card of is limited to 128MB no matter how much you set it at the VM Display Settings. The rest works in s similar way as shared memory (e.g. if you allocate 512MB, 384MB will be shared memory).
The amount of virtual graphics memory inside the VM has nothing to do with the host graphic card memory. You could very well have a GTX 1080 Ti with 11GB GDDR5 on the host and it won't make any difference in the amount of graphics memory inside the VM. Having said that, the more powerful/capable the host graphics card, the smoother the graphics will be at the VM.
Workstation 14 supports 3D accelerated graphics up to DX10 and OpenGL 3.3 core profile in Windows/Linux VMs. But since you are using Windows XP guest OS, the XP guest VM can have up to DX9.0c capability.
