It's an Xserver that runs inside Wayland. Wayland is a new graphics server (made for Linux), that replaces X. But most applications will still need X. So you ru

It's an Xserver that runs inside Wayland. Wayland is a new graphics server (made for Linux), that replaces X. But most applications will still need X. So you run a small X server inside Wayland so you can still use those applications. (N.B graphics are run as a server in Linux, you send requests to the server and it places you graphics on the screen (if applicable))