xfce is "The Cholesterol Free Desktop Environment" for your computer. It's a lightweight desktop that uses GTK and looks vaguely like CDE. It looks reasonably good on your screen, and takes very little memory.
It comprises a window manager, a panel (which doesn't handle icons), a rudimentary file manager, and a few more drag and drop applications.
The window manager (XFWM) is adapted from FVWM, but apparently a rather old one (for instance, it doesn't do sloppy focus). But unlike most FVWM variants, you're not supposed to launch applications from its menus; instead, you should use the panel.
The panel is XFCE proper. It includes a pager for your virtual desktops, a clock, buttons to lock the screen and configure the environment, and CDE-like "drawers" which can launch applications (instead of using menus). These menus are quite limited, since you can't have submenus.
All in all, XFCE is a very lightweight environment, which is designed to be configurable with a mouse only (without editing text files directly). It's not KDE, being much smaller, and it's not FVWM2, being much easier to configure (and having the panel thingy). It is what it is.