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Levels in Avarice are generated procedurally or by players when they are using the level editor. Block XML allows players to invent their own blocks, adding to the existing swath of pre-made blocks that come in the game.
Currently the most up-to-date information is located on Reddit: http://www.reddit.com/r/Avarice/wiki/blockxml Some day, some kind soul will need to copy it here!