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Playing online games with your friends is fun--but it can be difficult if your friends have moved all over the country. XFire is a tool for making it easy to get groups together for games like Call of Duty or Team Fortress, allowing people to easily coordinate servers, times, and so on. It also has some useful features to enhance gameplay--no cheats, though.
Basically, XFire is a central clearinghouse for online game related information, more specialized than IM tools like Microsoft Messenger and ICQ. It tracks which games you play (and for how long), which servers you've logged into, and so on. It makes it easy for your friends (or friends of friends) to view this information so that game times, servers, and so forth can be agreed upon.
It has other features--it can take screenshots and store them in your online account. While many games have a screenshot feature, this automates taking them and uploading them. It also allows you to quickly take movies in-game--I recorded the exciting adventure of my goblin shaman, Woondzfixa, as he killed some random dwarf. I'll see you at the Oscars.
If you don't play a lot of team-based online games, XFire offers a few mildly nifty utilities and not much else. If you're an active member of many gaming "clans" and spend your days waiting to "frag" someone, though, XFire can be very useful.