The pam_xauth PAM module is designed to forward xauth keys (sometimes referred to as "cookies") between users.
Without pam_xauth, when xauth is enabled and a user uses the su(1) command to assume another user's privileges, that user is no longer able to access the original user's X display because the new user does not have the key needed to access the display. pam_xauth solves the problem by forwarding the key from the user running su (the source user) to the user whose identity the source user is assuming (the target user) when the session is created, and destroying the key when the session is torn down.
This means, for example, that when you run su(1) from an xterm session, you will be able to run X programs without explicitly dealing with the xauth(1) xauth command or ~/.Xauthority files.
pam_xauth will only forward keys if xauth can list a key connected to the $DISPLAY environment variable.
Primitive access control is provided by ~/.xauth/export in the invoking user's home directory and ~/.xauth/import in the target user's home directory.
If a user has a ~/.xauth/import file, the user will only receive cookies from users listed in the file. If there is no ~/.xauth/import file, the user will accept cookies from any other user.
If a user has a .xauth/export file, the user will only forward cookies to users listed in the file. If there is no ~/.xauth/export file, and the invoking user is not root, the user will forward cookies to any other user. If there is no ~/.xauth/export file, and the invoking user is root, the user will not forward cookies to other users.
Both the import and export files support wildcards (such as *). Both the import and export files can be empty, signifying that no users are allowed.