Xserve is like beuwolf or any other distributed network computing cluster, it uses a central data repository (xsan, etc) and multiple computers to process a job.
It's main advantage over other solutions is it is built into os x (even non server) and almost every apple pro app can utilize it. So for example, i'm on a computer with final cut pro, the whole project is saved on my xsan network, and I need to make a version of a few scenes for my iphone so i can watch them and give feedback to the edit team, all i want to do on the way home on the train.
Normally, converting 10 mins of 4k footage to iphone quality would take an EXTREMELY long time, even on a mac pro 8 core! so instead, I send it ot the xgrid, which is made up of 24 Xserves sitting in a server room in the bacement of my studio. Since they are all connected to the central data repository over very fast connections, they all begin processing this job I have sent then, and within a few mins I have a version ready to be uplaoded to my iphone.
But wait, there's more! by sending the task to the xgrid, it means my workstation's CPU is doing ZERO percent of the work of encoding the video, so I am free to switch over to aperture and look at some of the production photos, open up logic and see how the soundtrack is coming, etc. Or I could continue editing the final cut project.
Not really useful if you have a home network, impossible to live without if you work professionally.