There might be the time were you need to show your application or game to other people without releasing the source code. Therefore it is possible to share only the xap file and deploy it to a device or to the emulator.
The RTM version of the Windows Phone Developer Tools comes with a very useful tool that allows you to do exactly this.
This application is very easy to use and is available in the following dir: C:\Program Files\Microsoft SDKs\Windows Phone\v7.0\Tools\XAP Deployment
Of course that you will need a developer unlocked device or an emulator to be able to side load the xap file.