SKU stands for Stock Keeping Unit and is a number associated with a product for inventory purposes. X-Cart uses this number to identify an individual product. That is why each product must have an SKU, and each SKU should be unique.
If your products do not have an SKU, ISBN, or part number, you can invent your own arbitrary numbering system. The important thing is you give X-Cart unique numbers that it can use to reference each product.