Xcode is a set of developer tools packaged in a nice IDE, which brings together all of Apple's developer goodies under one umbrella. If you have used Eclipse or NetBeans before, then you will find Xcode to be quite similar in terms of IDE functionalities. Xcode not only supports making apps for iPhone, but it also supports Mac OS app development.
The Xcode toolkit includes the Xcode IDE, Interface builder, Apple LLVM Compiler, Debugger, and the Instruments analysis tool. This makes it a complete tool to design, code, test, debug, and submit your apps to the Apple Store, everything right under one tool. Not to forget the great iOS Simulator that lets you test your iPhone and iPad apps within the simulator, in case you do not have multiple devices to test your apps. The iOS 5 SDK now includes location simulation, so you don't have to run outside to test your apps for location testing! Let's explore the features and tools of Xcode in more granularity.