Windows Mobile users are probably familiar with .cab files. These are the installer files that you can copy to your phone to install new applications. Cab stands for “cabinet” and the installers contain all the files and registry settings you need to install an app. They’ve been around for the last ten years, but Microsoft will be phasing them out with the introduction of Windows Phone 7 later this year.
Apparently Windows Phone 7 will instead use .xap files for installing applications. Basically a .xap file is a .zip file containing a series of files including the application and possibly some .xml files that tell the operating system different things like what level of security access the app needs, or which .dll holds the main application.
You can find out more and even download a sample .xap file at the xda-developers forum.