A sitemap is exactly that -- a map that search engines read to find what is on your website.
Sitemaps are a simple way of keeping the main search engines like Google or Bing up to date with what is going on with your website. I mean, why bother writing a website if nobody every reads it right?
The XML sitemap module creates a sitemap that conforms to the sitemaps.org specification. This helps search engines to more intelligently crawl a website and keep their results up to date. The sitemap created by the module can be automatically submitted to Ask, Google, Bing (formerly Windows Live Search), and Yahoo! search engines. The module also comes with several submodules that can add sitemap links for content, menu items, taxonomy terms, and user profiles.
I can almost guarantee that you are reading this because you searched for something on a search engine and it bought you here. It only knows about this website because of the website map 'sitemap.xml'
The sitemap is pure XML (a kind of funky HTML) and basically lists everything that is on the website and looks something like this: