/etc/X11/app-defaults/XTerm defines X resources used by Xterm. X resources are configuration values used by old-fashioned X applications (applications that came before modern environments such as Gnome and KDE which have their own, less powerful configuration system).
Don't modify the system file. Instead, write your own settings in
~/.Xresources. Most setups read this file automatically, but on Cygwin, you may need to run it manually.
Resource settings have the form
SETTING: VALUE where
SETTING consists of dot-separated names. The first name is the name of the application whose setting you're specifying (here,
XTerm), then zero or more nested components (“widget”) and finally the resource name. The manual page documents the resource names.
Resource names are case-sensitive. StudlyCapsified names designate classes while lowercase names designate instances. You don't really need to understand what this means; if it ever comes up, be aware that settings for an instance take precedence over settings for a class.