XSLT (Extensible Stylesheet Language Transformations) is a language used to transform XML documents into other formats like other XML documents, HTML, text, etc. It can be used in Mule to transform an XML payload from one structure to another. For example, a Mule flow gets an XML payload, passes it through an XSLT transformer using an XSL stylesheet, which transforms the XML to a new structure and outputs the transformed XML payload.