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Let me be the first to say XML is very easy to understand in Word 2007, but only if you're the front user and not the back end user. XML stands for Extensible Markup Language, which is a sharable language between different programs. It describes only the content of the file (not the formatting) using tags or a "set of rules," and then saved as an XML document. Simple enough right? Well, if you do want formatting from other programs to apply then they have what are called Schemas. A Schema has an .xsd extension and is the "set of rules." Okay, this is best explained in my training video and we also cover Elements - defined as "each rule" in a Schema.
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