What does the ref attribute on an element in an XSD do?

Basically it references another element that is declared elsewhere, which may or may not be the same schema document.

For instance, it could come from an externally referenced schema in a different namespace. Suppose you use the item element a lot in several different schemas, you can declare it (and any other common types and attributes) in a common schema, and then reuse those in all your other schemas.

If you reference your common schema with the namespace c, you can declare an instance of the item element on its own or as part of a type as follows:

<xs:element ref="c:item" /><!-- reference here --><xs:complexType name="something">    <xs:sequence>        <xs:element ref="c:item" /><!-- and here -->    </xs:sequence>    <xs:element name="other" type="xs:Name" /></xs:complexType>

The definition in the data schema would look like this:

<xs:element name="item" type="itemType" /><!-- referenced element --><xs:complexType name="itemType">    <xs:sequence>        <xs:element name="code" type="xs:Name" minOccurs="0" maxOccurs="unbounded" />    </xs:sequence>    <xs:attribute name="description" type="xs:normalizedString" use="required" /></xs:complexType>

For example if you want to declare element types that can appear deeply nested, but also as top level elements in an instance document.

The XML Schema Primer has examples for this: http://www.w3.org/TR/xmlschema-0/