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This file is created by xsetup, and works as a sort of configuration file for the X server. It consists of a command and its parameters that would otherwise be typed into the console. This is necessary for DSL's tiny X server because the server does not use a configuration file in the same way that Xfree86 uses XF86Config-4

The default settings created by xsetup in DSL 3.0 are here:

       exec /usr/bin/X11/Xvesa -mouse "/dev/psaux",5 -screen 1024x768x32 -shadow -nolisten tcp -I &>/dev/null

This starts the Xvesa server with a 5-button (3+mousewheel) mouse and screen resolution of 1024x768