What does elementFormDefault do in XSD?

Consider the following ComplexType AuthorType used by author element

<xsd:complexType name="AuthorType">
  <!-- compositor goes here -->
  <xsd:sequence>
     <xsd:element name="name" type="xsd:string"/>
     <xsd:element name="phone" type="tns:Phone"/>
  </xsd:sequence>
  <xsd:attribute name="id" type="tns:AuthorId"/>
</xsd:complexType>
<xsd:element name="author" type="tns:AuthorType"/>

If elementFormDefault="unqualified"

then following XML Instance is valid

<x:author xmlns:x="http://example.org/publishing">
   <name>Aaron Skonnard</name>
   <phone>(801)390-4552</phone>
</x:author>

the authors's name attribute is allowed without specifying the namespace(unqualified). Any elements which are a part of <xsd:complexType> are considered as local to complexType.

if elementFormDefault="qualified"

then the instance should have the local elements qualified

<x:author xmlns:x="http://example.org/publishing">
   <x:name>Aaron Skonnard</name>
   <x:phone>(801)390-4552</phone>
</x:author>

please refer this link for more details

ElementFormDefault has nothing to do with namespace of the types in the schema, it's about the namespaces of the elements in XML documents which comply with the schema.

Here's the relevent section of the spec:

Element Declaration Schema

Component Property  {target namespace}
Representation      If form is present and its ·actual value· is qualified, 
                    or if form is absent and the ·actual value· of 
                    elementFormDefault on the <schema> ancestor is qualified, 
                    then the ·actual value· of the targetNamespace [attribute]
                    of the parent <schema> element information item, or 
                    ·absent· if there is none, otherwise ·absent·.

What that means is that the targetNamespace you've declared at the top of the schema only applies to elements in the schema compliant XML document if either elementFormDefault is "qualified" or the element is declared explicitly in the schema as having form="qualified".

For example: If elementFormDefault is unqualified -

<element name="name" type="string" form="qualified"></element>
<element name="page" type="target:TypePage"></element>

will expect "name" elements to be in the targetNamespace and "page" elements to be in the null namespace.

To save you having to put form="qualified" on every element declaration, stating elementFormDefault="qualified" means that the targetNamespace applies to each element unless overridden by putting form="unqualified" on the element declaration.