This is the ability to point to a word or phrase, and then look it up in Wikipedia.
I don't know if this is specific to the Touch. On my Kindle 3, I can look up a word or phrase in Wikipedia, Google or the Amazon Store. But I think the special thing about X-Ray is that the Wikipedia entries are pre-loaded with the book, so you don't need an Internet connection (not sure about that).
More information here:
http://www.amazon.com/gp/product/B00...stripe_kt#xray
Mike