Supposed to be a form of Instant Messenger for gamers; works particularly well with server based games because for most of the ones it supports, it can detect what server you're on and report that to friends in your buddy list so you can all jump on the same one.
Also tracks gameplay time, so you can truely say "Yes, I have spent 200 hours in Civ 4: Beyond The Sword" or "Yeah, I played Halo for less than an hour"
The big draw is on a good number of games it supports, it'll let you do IM's via the game itself - none of this alt-tab crap or "have to play in windowed to chat."
To be frank I just like the thing about tracking my games I play, but thats me.
Edit: know this is probably useless, but:
http://www.xfire.com/ NON-REFERRAL LINK! No really. I don't even think xfire _does_ referrals.
Username lw90210, took the time to re-create a new account and kick the old users outta my list.
Someone send me an email via the x10 forums thing if you do create an x10 clan, I'll likely join even if it's just me pretending to be useful