How to find out the Sql Server version and service pack

@@VERSION returns information about the version,
processor, build date, copyright info and the operating system of the
current SQL Server installation

SELECT @@VERSION as VERSION

returns
'Microsoft SQL Server 2005 - 9.00.3042.00 (Intel X86) Feb 9 2007
22:47:07 Copyright (c) 1988-2005 Microsoft Corporation Developer
Edition on Windows NT 6.0 (Build 6000: ) ' on my machine

SERVERPROPERTY displays information about the server instance

We can use the SERVERPROPERTY with the 'propertyname' to get information about the SQL SERVER instance.

For eg:

To get the product version, use :

SELECT SERVERPROPERTY('productversion') as ProductVersion

returns '9.00.3042.00' on my machine

To get the Service Pack information or the level of version, use :

SELECT SERVERPROPERTY ('productlevel') as Level

returns 'SP2' on my machine

To get the product edition, use :

SELECT SERVERPROPERTY('edition') as EDITION

returns 'Developer Edition' on my machine

Similary
you can retrieve the LicenseType, MachineName, Number of client
licenses on the current instances, servername and many more property
information about the current sql server instance.

Check a list of other properties over here.