you may ask why not just get a mac pro as opposed to an xserve. There are 3 reasons why xserve may be a more appropriate choice to use as a server:
first, it is made to be rack mounted. Imagine a company needs 10 servers. If you put them in a rack you would need 2-3 racks. they are not very efficient on space. consequently, you can easily fit 10 xserves in a full size rack and still have room for more.
here is an example
second, xserve comes with an unlimited version of mac osx server. This costs $1000. So if someone is teetering between getting a mac pro vs xserve to use as a server, this can also make the xserve more attractive.
finally, because of the way an xserve is made, components are made to be swapable and/or hotswapable. for example, if the power supply fails you unclip it, pull it out and slide in a replacement. you can also get a second power supply that is running in tandem. if one fails there is no downtime. you could also swap hard drives without rebooting (hard drives that are not the system drive). Also it also has a few more network management and monitoring features.
that should give you a good idea of why people buy xserves.