openstreetmap - How to use OSM xml extracts? Can I make an offline app in Android using OSM?

I'm new to OpenStreetMaps. I have followed their wiki/main page and tried to understand it.

Can anyone briefly explain how exactly OSM xml data works and how it is rendered? ...Any links /pointers would be useful.

I went to this link: cloudmade osm xml extracts. Here I'm seeing various file extensions of the OpenStreetMap files. I want to know, is there a way to use OSM xml extracts to download /display a map?

Also, how can I use OpenStreetMap data to make an Android app completely offline? E.g., tripadvisor recently launched such apps.

Any help, suggestions are welcome. Thanks.