That's one of the questions answered within Peter Flynn's excellent FAQ site, covering on everything you always wanted to know about eXtensible Markup Language. A good read on the fundamentals.
By the way, Peter's answer to the question: "Why do we need all this XML stuff? Why not just use Word or Notes?" is that "Proprietary data formats, no matter how well documented or publicized, are simply not an option: their control still resides in private hands and they can be changed or withdrawn arbitrarily without notice."