In a recent discussion with my team members, I sensed a lot of confusion over basic concepts on XML Schemas and namespaces - especially over targetNamespace, DefaultNamespace, elements vs types, etc. Well first, lets get the fundamentals right.
A XML schema defines and declares types (complex and simple) and elements. All elements have a type. If the type has not been specified, it defaults to xsd:anyType. It's easy to understand this by drawing an anology between a class and an object. New elements can be created by referencing existing elements.
In a WSDL message description, a WSDL part may reference an element or a type. If the SOAP binding specifies style="document", then the WSDL part must reference an element. If the SOAP binding specifies style="rpc", then the WSDL part must reference a type.
Now coming to namespaces, users typically get confused over the difference between a targetNamespace and defaultNamespace. The 'targetNamespace' attribute is typically used in schema files to identify and select the namespace into which new elements that are defined are created in. It is the namespace an instance is going to use to access the types it declares. For e.g. An XML document may use this schema as the default schema. Default schema is defined simply by using 'xmlns=' without a prefix.
It is important to remember that XML schema is itself an XML document. Hence a schema can contain a namespace attribute and also a targetNamespace attribute. Typically they are the same.
Jotting down links where more explanation is given: