Hi,
most examples in the mkiv-xml manual use #1 with \xmlsetsetup, e.g.

\startxmlsetups xml:demo:base
  \xmlsetsetup{#1}{document|section|p}{xml:demo:*}
\stopxmlsetups

However, in quite a few occasions I've noticed the usage of \xmldocument instead of #1.

What exactly is the difference ?

When should you prefer one over the other?

Best,
Denis