Format files are used to store formatting information needed for bulk importing or exporting data between tables or databases. There are two types of format files - XML and non-XML. XML format files use a structured XML format to define field and column mappings and data types. Non-XML format files store mappings in a proprietary binary format. Format files are required when the source data file schema does not match the target table schema, such as when column order or number of fields differ. They ensure data is mapped correctly during bulk operations.