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The WinSXS folder contains all Windows system components. In fact, component files elsewhere in Windows are just links to files contained in the WinSXS folder. The WinSXS folder contains every operating system file.
When Windows installs updates, it drops the new Windows component in the WinSXS folder and keeps the old component in the WinSXS folder. This means that every Windows Update you install increases the size of your WinSXS folder. This allows you to uninstall operating system updates from the Control Panel, which can be useful in the case of a buggy update — but it’s a feature that’s rarely used.