LabKey will run any sql scripts it finds in the schema/dbscripts/postgresql or schema/dbscripts/sqlserver to create the tables when the module is first loaded. Defining the schema in the schema/<schema-name>.xml file allows LabKey to connect to existing tables. It is possible that LabKey could use this xml file to create tables and columns but we haven't addressed that yet.

I find it easier to create by tables first then generate a stub schema xml file from the following action:
http://<server>/labkey/admin/getSchemaXmlDoc.view?dbSchema=<schema-name>

Here's a link to the help topic:
https://www.labkey.org/wiki/home/Documentation/page.view?name=includeDatabaseScripts