XAML (pronounced as Zammel) is a declarative XML-based language by which you can define object and properties in XML. XAML document is loaded by a XAML parser. XAML parser instantiates objects and set their properties. XAML describes objects, properties and there relation in between them. Using XAML, you can create any kind of objects that means graphical or non-graphical. WPF parses the XAML document and instantiates the objects and creates the relation as defined by XAML.
So XAML is a XML document which defines objects and properties and WPF loads this document in actual memory.