XML schemas define how files of a certain type are treated - in this case address data.
The pool of item definitions is stored in the corresponding scheme. In simple terms, schemes are the hierarchically superior instance of items. Exactly what Windows interprets as a document, contacts, video or audio data and what contextual links exist between item types is governed by XML schemas. Developers are able to define new schemes to record certain information structured as items - for example, particular mail attachments.
The advantage of this approach is that WinFS uses metadata to link items with related content, such as contact data with documents. File formats are not about to lose their significance altogether, however, but will serve alongside other useful functions to allocate new file types (extensions) to the existing stock of items.