Xfig is a vector graphics editor used to create diagrams. Vector images store graphics as collections of lines and vectors, allowing the images to be scaled to any size without losing quality. In contrast, bitmap images store graphics as collections of dots at fixed resolutions. Vector editors are generally better for page layout, logos, illustrations with sharp edges, technical diagrams, and flowcharts, as they can be easily modified. Bitmap editors are more suitable for photo editing and realistic illustrations.