It shoots a small grenade where each shot can be custom programmed to explode in air at a certain distance measured by laser. This way, the military can hit targets hiding behind walls, around corners, dug into the ground, etc.
From the above Wikipedia (so it may or may not be completely accurate) link:
The XM25 CDTE fires 25 mm grenades that are set to explode in mid-air at or near the target. A laser rangefinder in the weapon is used to determine the distance to the target. The user can manually adjust the detonating distance by up to 10 feet (3.0 m) shorter or longer; the XM25 automatically transmits the detonating distance to the grenade in the firing chamber. The grenade tracks the distance it has traveled by the number of spiral rotations after it is fired,[4] then detonates at the proper distance to produce an air burst effect. These features make the XM25 more effective than traditional grenade launchers at the task of hitting targets that are behind cover or dug into the ground (i.e. in defilade.) One of the weapon's developers, Richard Audette, believes that the XM25 is a big leap forward because it is the first small arms weapon to use smart technology.[5] The system has been developed by Heckler & Koch and Alliant Techsystems, while the target acquisition/fire control is developed by L-3 IOS Brashear.
History
In the summer of 2010, the United States Army began field testing the XM25 in Afghanistan, with an initial per unit cost of the early models range from US$30,000 to $35,000. The Army plans to purchase 12,500 XM25s in 2011 at a cost of $25,000 each[6] and have them fielded by 2012, enough for one XM25 system in each infantry squad and special forces team.[7][8] According to U.S. Army project manager for new weapons, Colonel Douglas Tamilio, the rounds for the XM25 will cost about $24 each.[9]
Alliant Techsystems has indicated that the rifle may later use bullets with smaller explosive charges which will stun opponents rather than killing them.[9]
Five of the weapons were deployed with the 101st Airborne Division in Afghanistan in October 2010,[10] along with 1,000 hand-made air-burst rounds. The soldiers reported that the weapon was extremely effective at killing or neutralizing enemy combatants firing on US troops from covered positions. The US troops have nicknamed the weapon, "The Punisher."[11] First contact was 3 December 2010. As of February 2011, the weapon has been fired 55 times at a cost of $1,000 each, but the cost is expected to be $35 per shot when in full production, scheduled from 2012.[12] The US Army ordered 36 more of the rifles in January 2012.[13]
Program status
April 2005 - First prototypes are delivered to the U.S. Army for field-testing.[14] September 2005 - Test firing by regular troops at Grafenwöhr Training Area.[15] Summer 2009 - Field tests in Iraq or Afghanistan.[4] November 2010 - Preliminary deployment in Afghanistan.[16] 3 December 2010 - First contact.[12] 2013 - Scheduled to begin low-rate initial production.[12]
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