xml is a text file - just structured text.
its not dynamic html per se, but it looks a lot like html in its syntax.
how it works depends on what you are doing with it. It can be a simple way to hold information or it can be super complicated and do all kinds of crazy things which to what extent, even I have no idea.
You need a text editor to make it. Depending on how its used, you will need some other program to… well use it. Like HTML, you can make it in a text editor, but to use it, you need a browser. Flash can load XML and interpret its data. There are XML resources here at Kirupa:
http://search.atomz.com/search/?sp-advanced=1&sp-q=xml&B1=search&sp-a=00040c2f-sp00000000&sp-w-control=1;
http://www.kirupaforum.com/forums/showthread.php?s=&threadid=13697
