When you get an .obj file to import into XSI Modtool 6.01, what is the .mtl for and how do you use it? I assume its something to do with the texture, because I've seen it mentioned as such a few times. From that I guess .mtl = material?

You are correct it is a list of materials that are used within the obj.
What use is it that is a good question, it is a nice list, good for crossreferencing materials used for the different parts of the meshes and/or clusters so re-assigning materials is a bit easier.
Been my experiences that sometimes obj imports don't always keep materials even though they keep UVs.