The communication networks which use the Common Industrial Protocol can interface with very intelligent devices. The EDS (Electronic Data Sheet) provides information to the communication program (for example RSLinx in Allen Bradley) concernig the capabilities of the device including the actual names of parameters, types of data and current values. If the communication program can 'see' the end device on a network it receives a name and also a unique number from the device which translates into the name of the associated EDS file. If the communication program does not have this file it can only report that there is a device with a certain name but 'knows' nothing else. AB's RSLinx reflects this as a yellow question mark. Some newer devices contain the EDS within itself and it can be uploaded by the communication program.
Note that even version number changes in a device will require a different EDS file because of changed capabilities of the device.
As far as 'what you do with it' I can only discuss Allen Bradley. It has an 'EDS Hardware Installation Tool' which will, when given the name and location of the EDS file, distribute the information concerning the file to the appropriate places, including the Windows Registry, and make a copy of the EDS file in a central storage area.