What is Application Library Caching

Most of the time including this extra assembly in your XAP file would be fine. There is an alternative though. You can separated the Microsoft.Maps.MapControl assembly out and have the client’s browser cache it locally. This is called “Application Library Caching”. If the client already has a cached copy of the assembly it does not need to be downloaded again. This would obviously decrease the amount of content that needs to be downloaded for the application to run. To configure the Silverlight project to use library caching you right-click on the project in Solution Explorer and choose the “Properties” option. This will open the properties tab for the project and then you check the box labeled “Reduce XAP size by using application library caching”, as shown in the following screen capture:

ClientBin folder is used to place the .XAP file of Silverlight application. You can keep this anywhere in your web application but this is the default that is used by the Silverlight.
The .XAP mime type is: application/x-silverlight