/etc/X11 is the recommended location for all X11 host-specific configuration. This directory is necessary to allow local control if /usr is mounted read only. Files that should be in this directory include Xconfig (and/or XF86Config) and Xmodmap.
Subdirectories of /etc/X11 may include those for xdm and for any other programs (some window managers, for example) that need them. We recommend that window managers with only one configuration file which is a default .*wmrc file should name it system.*wmrc (unless there is a widely-accepted alternative name) and not use a subdirectory. Any window manager subdirectories should be identically named to the actual window manager binary.
/etc/X11/xdm holds the configuration files for xdm. These are most of the files normally found in /usr/lib/X11/xdm. Some local variable data for xdm is stored in /var/state/xdm.