This week's book giveaway is in the OCAJP 8 forum. We're giving away four copies of OCA Java SE 8 Programmer I Study Guide and have Edward Finegan & Robert Liguori on-line! See this thread for details.
First, an object is created for the string literal "xyz", which acts as a reference to the String object. Then that reference "xyz" is passed to the String constructor, which is called with the new operator, thus creating a second object.
Put another way, "xyz" refers to an object, and new String("xyz") refers to another object.