Okay, so I'll keep spoilers hidden, but be warned, Xenoblade is a magnificent game and if you haven't beaten it yet, you'll ruin the experience for you big time if you read any stuff in this topic.
A'ight, so I believe that "X" will be set in the near future of the new world Shulk kinda makes at the end of Xenoblade. Because creatures are born from ether, new races and creatures spring up quickly, plunging the rest of the world, outside of the colonies, into a prehistorical age, explaining all the dinobeasts in the trailer. Shulk decides to go back to studying engineering as well as space exploration, a new interest sparked by his encounter with Zanza. This leads him to develop the giant mechs, called Dolls.