I'm not 100% knowledgeable myself, but from my understanding, it's the windowing service that Mac Os X uses when running a bunch of unix programs. Basically, it's an in-between app that runs so that the Unix software can draw windows in Mac Os X environment.
Back in the day, I believe it wasn't actually installed by default anyway, and had to be installed from the Xcode developers disk. Then at some point, Apple made it part of the default install. That was X11.
While that was going on, Apple would collaborate with the open source project, Xquartz. Same thing, just a more up-to-date version. In fact, I do believe, you used to just overwrite the built-in X11 with the more recent version. Then later, it split so you can have the default X11 as well as the Xquartz version.
As part of the collaboration, changes that were incorporated in the open source version were always trickled down into the default Mac OS X version, typically during security updates.
SO the fact they are not including it anymore doesn't really mean much - like I said, at one point it was an optional install on the extra Mac OS X disc anyway.