Well, I can clarify what pkg-config does for you, but I'm not quite sure how it would help you with your xmms install.
pkg-config is a nice program that will give you compiler arguments to locate the libraries header files and any special flags the compiler needs to use the code in the libraries. In a nutshell, you use the pkg-config command so you don't have to remember exactly where the library files are installed or (potentially) cryptic compiler arguments.
So, as an example, open up a command-line and type this command:
pkg-config --cflags --libs glib
You may need to be root to do that. For my system, it spits back this:
-I/usr/include/glib-1.2 -I/usr/lib/glib/include -lglib
If you get a command not found, the pkg-config is not installed.
If you get a "package was not found", then the library you're looking for is either not installed, or not configured to use pkg-config.
So the output I got above is supposed to be fed to the compiler during the "make" portion when compiling a program that uses glib. Since the make command reads directly from a Makefile, there's no way for you to introduce these options to the compiler without manually hacking at the Makefile itself. The configure script should take care of that for you... hacking the Makefile is not typically required.