The jetty.xml is the configuration file when you run the server java -jar server.jar etc/jetty.xml. However, you may create one with your own configuration and settings and explicitly specify it when you run the server ...etc/my_own_config.xml.
Once the server is running, the elements declared and placed in between its parameters are called and/or created. Here's a more descriptive oveview of the jetty.xml:
<!DOCTYPE Configure PUBLIC "-//Mort Bay Consulting//DTD Configure//EN" "http://jetty.mortbay.org/configure.dtd">
All tags and elements declared inside jetty.xml will be pointing to this resource, configure.dtd. This only means tags and/or elements will be readable based from this data type file.
<Configure id="Server" class="org.mortbay.jetty.Server">
This is the first instance called when you run the server. The org.mortbay.jetty.Server is the main class for the Jetty HTTP Servlet server. It aggregates connectors (HTTP request receivers) and request Handlers. The server is itself a handler and a ThreadPool. Connectors use the ThreadPool methods to run jobs that will eventually call the handle method.