While some of the new gaming phones have hardware controls either on board or as accessories most handsets out there rely on touch and motion. Those are fine for casual games, but Microsoft believes it can interest serious players with Xbox-like controllers.
This is just a research project for now, but the vision of the team is for Switch-like flexibility. They controllers themselves analog sticks plus a D-pad or a handful of buttons on each side are relatively small and they attach to the side of the device (be it phone or tablet).
Additional slide-in grips can be used for improved ergonomics. Alternatively, the controller halves can be joined together (attaching to the charging dock) for a more traditional controller experience. Using just one half could replace dedicated VR motion controllers.
Meanwhile, the latest update for the Xbox One Preview Beta Ring (1811) is rolling out with support for using a keyboard and mouse to play. This is currently limited to Warframe and going forward will be enabled on a game-by-game basis. So, its up to developers whether they want it or not (though it might be a good idea if cross-play catches on).