From DSL Wiki
This file is read by X applications to determine their X properties. Its function can be seen as a way to adjust X resources of specific applications without the need to start the program with a long string of commandline parameters. The syntax of a line in .Xdefaults often looks like this:
Appname*resource[*|.[optional "sub" resource]...]: value
The appname is generally the WM_CLASS of the application, which can be shown by using the xprop command, and the resouces and their values are commonly listed in the individual applications' documentation. In addition to what the docs may provide, many applications also accept the standard X resources, such as geometry, font, and background.
The default file in DSL 3.0 looks like this:
Aterm*scrollBar: true Aterm*transparent: true Aterm*title: Terminal Aterm*foreground: white Aterm*background: black Aterm*font: fixed Aterm*cursorColor: green Aterm*fading: 70 Aterm*shading: 50 Aterm*color12: DodgerBlue1
If a given resource is also available as a commandline parameter, the commandline will take priority over what is stored in .Xdefaults.
Examples of the subresources mentioned above can be seen in /home/dsl/.fluxbox/init, which is essentially an X resources file that is specific to Fluxbox. This files shows more varying use of the separating dots and wildcards (*), which may help to understand their use.
If you have an application, such as Aterm, which you may want to provide with different resources depending on what program is opened in the term, or for whatever other reason you may have, you can make a symbolic link to aterm (with a unique filename) and add lines to .Xdefaults for that symlink, replacing the name "Aterm" with the name of the symlink.