XML Schema and XML in one file?

Yes you can have xsd and xml in a same file such declaration is called as Inline Schema definition.

But as per general practice they are kept outside for many reasons, one of the very famous reason is:

• Reusablility

Lets say you want to generate the sample xml/POJOs from the xsd for later.(Applies only for Java) (example JAXB)

Also as a best practice one should break the complex xsd into smaller xsd for easy to read and understand + flexibility of plugin the xsd required in a given case.