Dom0, or domain zero to expand the abbreviation, is the initial domain started by the Xen hypervisor on boot. The Xen hypervisor is not usable without Domain-0 ("dom0").
The dom0 is essentially the "host" operating system (or a "service console", if you prefer). As a result, it runs the Xen management toolstack, and has special privileges, like being able to access the hardware directly.
It also has drivers for hardware, and it provides Xen virtual disks and network access for guests each referred to as a domU (unprivileged domains). For hardware that is made available to other domains, like network interfaces and disks, it will run the BackendDriver, which multiplexes and forwards to the hardware requests from the FrontendDriver in each DomU.
Unless DriverDomain's are being used or the hardware is passed through to the domU, the dom0 is responsible for running all of the device drivers for the hardware.
A driver domain is unprivileged Xen domain that has been given responsibility for a particular piece of hardware. It runs a minimal kernel with only that hardware driver and the backend driver for that device class. Thus, if the hardware driver fails, the other domains (including Dom0) will survive and, when the driver domain is restarted, will be able to use the hardware again.