You can validate XML documents by URL, by file upload or by direct input.Furthermore, you can validate fragments of XML documents.
There are no options in the "XML Tools" plugin dropdown that provides for specifying an XSD file.
The XML plugin is installed properly in the plugins subdir and the 3 DLLs are copied to the Notepad EXE subdirectory.
However, it seems most people on Windows use an XML Editor, such as Notepad (as described in Nate's answer) or XML Notepad 2007 as suggested by Steve C (there are also several commercial editors which I won't mention here).
Finally, you'll find different programs will, unfortunately, give different results.
It has since been expanded to also validate both current competing JSON standards RFC 7159 and ECMA-404.