Trademark, not copyright. It means that you can't make something and call it "X" if there's any chance that your "X" and their "X" might get mixed up. Google ran into this same problem when they created "Alphabet" - it was already a trademark of some German car manufacturer (probably Audi or BMW), but the court ruled that "Alphabet the car company" and "Alphabet the online services company" are far enough apart that the average user probably won't confuse one for the other (although the Dove soap and Dove chocolate makes me doubt it). Twitter and Microsoft both offer online services. It might be enough of an overlap to constitute a trademark violation.

Copyright and trademarks are different things. In this case it looks like it applies mainly to the Xbox "X" logo like is seen on this (hilarious) page of the filing and is only for things related to messaging and gaming, so it's not as broad as it sounds. Based on a cursory look at Google results from before July 1st, I can't find any examples of Microsoft actually suing anyone for using the letter X, either.

This is my first thought. How does a company own a single letter? Why is this allowed?