From DSL Wiki
This file lists exceptions to files in .filetool.lst, which means if you have a directory listed in .filetool.lst you can use .xfiletool.lst to prevent certain things within that directory from being added to your backup.
This file works by using pattern matching rather than full file pathnames. In this way you can exclude multiple files with the same name which may be found in separate directories. If you want to exclude a specific file, you can still use the full path to the file.
The default file in DSL 3.0 looks like this:
Cache XUL.mfasl home/dsl/mnt home/dsl/.jwmrc home/dsl/.opera/cache4 home/dsl/.opera/images home/dsl/.fluxbox/mydsl.menu
Notice that "Cache" is listed without a path, which means all files named "Cache" within directories listed in .filetool.lst will be excluded from the backup. You can also use wildcards to extend the exclusion. For example, if it listed "Cache*" then all files whose names begin with "Cache" will be excluded.