A XAML file is part of the source code of your Silverlight application. Visual Studio compiles it, along with the rest of your source code files, into object code that is sent to the browser in the form of a .XAP file. The browser running your Silverlight app doesn't even get the original XAML file.
Test Studio doesn't need it either to automate your application. What happens at run time is the Silverlight engine creates this thing called the Visual Tree. The XAML file is compiled into code that will add elements to this Visual Tree in the correct order and with the correct properties. It is this Visual Tree that Test Studio looks at and automates.
This video, while old and the UI of Test Studio has changed a bit, shows you how to get started automating your Silverlight application using Test Studio:
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