xacro (XML macro) is a language for writing XML macros. It is designed to facilitate reuse of XML code. It is useful for reducing the size and complexity of urdf files.
The xacro compiler is distributed as a ROS package which can be found at http://wiki.ros.org/xacro. The compiler take in .xacro files and spits out .urdf files.
The xacro format allows you to use certain rospack commands inside .xacro files. The commands are used in the following format:
Two commonly used commands are find and arg, e.g.:
<foo value="$(find xacro)" /> <foo value="$(arg myvar)" />