For Validation and intellisense to operate correctly Microsoft Visual Studio needs to know the XML Schema that describes your XML Document.
The rules for finding the schema are as follows.
Visual Studio shows you the schema that will be used to perform validation and provide intellisense in the Properties tool window in the "Schemas" property
In this example the schema "SalesCatalogue.xsd" will be used.
You can alter the schema used by selecting the '...' button.