"Broadcast traffic" is how network devices find each other on a network when there's no way to resolve a name to an IP or MAC address. This is a very common practice in many protocols used on data networks. In the absence of DNS or WINS servers to perform the functions of name to address mapping it's one of the few other ways for devices on an IP based network to find each other (I won't go into hosts and lmhosts files).
To describe it very simply -
When one network device wants to reach another on the network it sends out what's called a "Broadcast" announcing to the network that it's looking for "X". All of the devices on the local network receive this packet, but only "X" responds back and says "I'm here!". It's easy for "X" to respond because the originating address is contained within the initial broadcast. So now both network devices have each other's addresses and can start using those for direct communication.
A routers job is to filter these broadcasts and create seperate "segments" on a network. If your XBox and PC are not on the same segment, XLink will not be able to find your MAC address - period. This means you cannot have a router between your XBox and PC and have any hope of it working - ever.
If you look at any XTest you'll see a line that shows the XBox MAC address pointing to the broadcast address that looks like:
0050f2xxxxxx --> FFFFFFFFFFFF
An address populated with all 1's (in binary) is considered the broadcast address. That's why, on an IP network, you cannot use the .255 address of the network for one of your network devices (in subnetted networks this may vary).
I hope this clears up a few things for you - and possibly others out there as well.