Does anyone know or can refer me to a site that explains how just by including the namespace to a url/urn, XSLT is able to get the logic of the functions / datatypes defined in that namespace?

Example
<?xml version="1.0" ?>
<Schema xmlns="urn:schemas-microsoft-com:xml-data"
        xmlns:dt="urn:schemas-microsoft-com:datatypes"
        xmlns:sql="urn:schemas-microsoft-com:xml-sql">


Thanks,
Vaibhav

Your question is about extensions in XSLT. About all XSLT processors support specific extension elements and/or functions.
It's not the namespace's magic: the concrete XSLT processor recognizes extension elements and functions by namespaces. Then the XSLT processor determines whether it has an implementation of the extension or not. That is, for any XSLT processor there is a set of extensions which is supported and which is specific to that concrete XSLT processor.
Refer to the XSLT spec: http://www.w3.org/TR/xslt#extension ;
Another excellent source (with examples) is Michael Kay's "XSLT Programmer's Reference", 2-nd edition.

Regards,
Armen

To simplify Armen's answer, the details are hard-coded into the XSLT processor. Some processors have the ability to add extra modules in a similar way to Excel or Word having third party add-ins.

Joe (MVP -xml)