This is Microsoft’s new electronic paper format, an alternative to the PDF format. Office 2007 supports 'Save As' to both of these formats via Add-ins, download 'Save As PDF or XPS' here.
For more details on the XPS file format, see Jeff Bell's blog post:
Unlike the Office Open XML Formats, XPS does not attempt to capture the full structured richness of an Office document. As an electronic paper format, it is all about a high fidelity representation of the output only. Because of this, creation of an XPS document from Office is a one-way, export operation.
Update: 6th December 2009
As there seems to be a lot of interests in the XPS file format by Microsoft, I thought I would add more details and useful links to this blog posting.
How do I open a XPS file? / How do I create XPS file?
XPS Viewer comes preinstalled with Vista and Windows 7, for older OS you need to download the XPS Viewer here http://www.microsoft.com/whdc/xps/viewxps.mspx
Useful tip 1:
Save a web page as a single .XPS file
prerequisite: XPS Document Writer - allows "Print to file" to save a webpage as a XPS file. If you are not running Vista or Windows 7 then you either need to install .Net Framework 3.0 or XPS essential pack.
I use this method when I can't save a web page as a html/mht format, usually you know when a web page cannot be saved as html when you get the following warning dialog box:
So instead of trying to save as html/mht, I would do a "print to file" using the Microsoft XPS Document writer printer driver. Printing a webpage works more often than saving a webpage. Long gone are the days when you have to take ridiculous number of steps to create a PDF file, this method of saving to XPS does not require Adobe Acrobat Distiller, GhostScript etc. as the webpage you see gets saved directly to XPS file which can be opened and printed later using a XPS viewer such as IE7.
Clicking on print allows you to save the displayed webpage as a XPS file.
Now you can open the XPS file for later printing in your favourite XPS viewer application such as IE8: