This tool is a Windows Forms application, which be downloaded including source. It is based on the XMLDiff and XMLPatch classes that come with the XmlDiffPatch API, and shows how to use XMLDiff. To illustrate what this utility can do even for the programmer who doesn't want to use the classes directly, I have included a few screenshots of how differencing might help in everyday XML scenarios.
The main screen: select two files to compare, then click the Compare button.
Comparison control: yellow highlights elements / attributes that were added.
Changes as well as additions and removals are easily visible too.
And in case you want to fine tune, go to the Diff Options menu.
When to use? Ever tried to find out what is different between two web.config files?