Orbeon Forms has long supported exposing XPath variables with the xxforms:variable extension [1]:

<xxforms:variable name="answer" value="42"/>

So it’s great that XForms 2 now standardizes variables with the new xforms:var element! The above example becomes:

<xforms:var name="answer" value="42"/>

The working group went with var for concision (not to mention that the name will be familiar to JavaScript programmers!).[2]
With XForms 2, you can use variables[3]:

• interleaved with controls
• within actions

Immutability is a good thing in programming, and XForms variables were designed this to be immutable within a given context. In particular, you cannot set a variable value in XForms (or XSLT): the variable value updates “when needed” based on the expression in the value attribute, respectively when the control tree is refreshed, or when entering the scope of an action.[4]
You refer to a variable using the $ notation of XPath:

<xforms:output
    value="if ($answer = 42)
           then 'Answer to the Ultimate Question'
           else 'Wrong!'"/>

Variables are also very useful within actions:

<action iterate="books/book">
    <var name="pos"  value="position()"/>
    <var name="book" value="."/>
    <setvalue ref="$book/@id" value="$pos"/>
</action>

You can do this kind of things with plain XForms 1.1, but then you would have needed to use the less clear context() function, for example.
Orbeon Forms 4.0 milestone builds support the standard xforms:var, so feel free to move your code away from good old xxforms:variable!