Also sometimes spelled "xe". The idea behind this is an interesting one which is quite revealing in some ways about our culture and language.
Because English has no gender-non-specific pronoun, there are many people (and groups) who find it quite annoying that in order to refer to a person of unspecified gender, one must use either "he" or "it." Either of these could, in the right circumstances, be highly offensive to the person being referred to. The one seems to announce that Male is the natural state for humanity, the other that the person being referred to is an object. And saying "they" for a person of unspecified gender is just plain wrong - they is plural, and just muddies whatever you're trying to say.
The other problem arises in the fact that there are many people who do not identify as being either male or female. Remember that although sex is biological and, to a degree, immutable, gender is a social construct, and a highly fluid one. Gender incorporates not only whether you consider yourself as male or female (or neither, or both), but also how masculine or feminine, whether or not you feel willing to shift your persona, and indeed a large part of your social identity. Sex is for the biologists, gender for the anthropologists (and linguists).
So imagine being referred to as "he", "she", or "it" by others simply because they don't have an appropriate word for how you identify yourself. It can feel demeaning or even frightening, and simply because our linguistics do not really allow for more fluid ways of referring to people within normal discourse. Thus is born the need for a neuter or non-specific pronoun.
Although I myself identify simply as a man, being at a school which is as liberal and moreover extremely tolerant as mine, I'm continually exposed to people who are actually misrepresented by not having a word like "ze". I say we give it a chance - the worst that could happen is that it'll really irritate amateur cipher breakers.