This post will grow later on but let’s start from the definition of XML Schema Definition.
The xsd is a XML Schema Definition file, which is used to validate XML or generate DOM classes (through the Xsd.exe Tool, for example). The Xsd.exe /dataset option generates a class derived from DataSet that corresponds to the specified schema.
XML Schema Definition Tool (Xsd.exe)
http://msdn.microsoft.com/en-us/library/x6c1kb0s%28v=VS.100%29.aspx