I think it may tell Xcode how to talk to your device. I installed the pkg, and the next time I booted up Xcode it wanted to install it further (and wanted to close iTunes to do so).
I hope some day they remove the syncing and OS update from iTunes and put it into some kind of standalone application. Its ridiculous that all this is together in the same app.
EDIT: the Xcode installer gives these details:
Provides device connectivity for development
If you don't know what it does then you definitely do not need to be downloading and installing it.
You only see that download if you are not a registered developer, and it reports you to Orchard Central and disables your iDevices...
Seriously, I have no idea.
No idea what it is but according to the beta 3 release notes, iTunes wifi sync won't work without it.
So I suppose it is just some form of a connection protocol, but it isn't a package that will allow me to install my xCode apps to my iPhone without a dev license... :/