At startup, Xarchiver detects the available installed archivers (tar,rar,zip etc) and the script xdg-open for handling different file types. Since Xarchiver is a frontend (a graphic user interface to the cmd-line executables) it can't create archives whose archiver is not available. For instance if you have the free edition of rar, unrar, Xarchiver can't create rar archives since unrar allows rar archives to be opened, tested and extracted but not to be created.
Xarchiver will run in the background the cmd-line executable of the archiver with the archiver's proper switches to perform the selected operation. If something goes wrong Xarchiver reports the full output of the archiver executable in the command line output window. From the release 0.5 the files in the archive can be opened within Xarchiver. The script xdg-open will detect the file type and run the proper application to handle it. If you don't have such script installed in your system (it's found in the xdg-utils package) Xarchiver will recognize HTML, txt and images files only. The Preferences dialog will notify this to you when you click the Advanced section inside it.
Xarchiver supports drag and drop through the XDS protocol. As far as I know only Thunar and Nautilus file managers supports it. Files and directories can be dragged from such file manager's windows to Xarchiver and vice versa. If its window is empty (no archives open) Xarchiver will prompt the user with the Figure 3.1, “New dialog” asking for the filename and the archive type to be created; after which the dragged files will be added. If the dragged file is a supported archive, Xarchiver will open it instead of prompting the new dialog.