.MDZ files are Module Description files (the DZ is a short form of DIZ, which is in turn a short form of Description). The .MDZ format can, however, contain much more information than normal Module/Sound files, which normally only contain the song's title and sometimes a ``song message'', which can be freely entered by the author. Things like the name of the author of a song, its playtime, a comment about it etc. which can be entered in OPENCP's Fileselector cannot be stored inside the module file, so they have to be stored somewhere else. Usually this is in the file cpmodnfo.dat, which normally perfectly suits this task.
However, this format has some disadvantages. Imagine you give a module file to a friend. Simply copying your cpmodnfo.dat together with the song on the disk is impractical, because this file overwrites your friend's cpmodnfo.dat when he simply copies it. So he could take your description, write it down somewhere, and take it with him, but that is pretty uncomfortable.
That's why the .MDZ files were invented. .MDZ files contain the description of one or more module file(s), just like the cpmodnfo.dat, but have attributes which make them interesting: