AJAX stands for Asynchronous JavaScript and XML, and what that means is the Javascript on the page calls into a Safe For Scripting DLL (Microsoft XML DLL in IE). A DLL stands for Dynmic Link Library and is a set of code instructions that execute when called. The DLL makes a request to a web page, it contains a little(mini) web browser that has no GUI, it just opens up a socket call to the web server over the http port and get the response from the web server (usually a text return type).
This means in browser script (running client side) a programmer can make a request to a publicly broadcasting http web service to get data from a database server. That means it can use the data to populate that dropdown box your working with on the page, without refreshing the page itself.
This technology is the fundation of WEB2.0.
Post Script: The XML comes in because the web service usually returns data in an XML format, that JavaScript can read because it understands the DOM(Document Object Model).
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