XDebug is a tool that allows developers to profile PHP applications to identify bottlenecks and anomalies. It works by instrumenting PHP code during execution and collecting metrics on runtime performance. The document provides instructions on installing XDebug, taking profiling samples of a WordPress site, and analyzing the results with Webgrind to identify expensive functions and optimize performance. With repeated profiling and analysis, developers can pinpoint specific code causing issues and refactor it for better efficiency.