To me XSD.exe is a tool for generating a code file for representing code accessible XML data. There are a variety of other uses but that is the one I have actually setup in projects. The generated code is also setup in a partial class so it is easy to expand upon the functionality of a given XSD based object. I generally build my XSD schema file and then use the pre-build event to invoke XSD.exe to generate the code file representing my objects. While XSD.exe/generated code usage may not always be the most appropriate, especially if your schema is not set in stone... It is a powerful tool to have accessible objects from XML with minimal setup time.
MSDN XSD (VS 2005)