The examples in the wiki article show the difference pretty well. XPM lets you sort-of see what the image is just by looking at the source file.

E.G. compare this

  static char blarg_bits[] = {
  0x13, 0x00, 0x15, 0x00, 0x93, 0xcd, 0x55, 0xa5, 0x93, 0xc5, 0x00, 0x80,
  0x00, 0x60 };

with this

  static char * blarg_xpm[] = {
  "16 7 2 1",
  "* c #000000",
  ". c #ffffff",
  "**..*...........",
  "*.*.*...........",
  "**..*..**.**..**",
  "*.*.*.*.*.*..*.*",
  "**..*..**.*...**",
  "...............*",
  ".............**."
  };