At the sub-$500 price point that Sony is offering the X Compact at launch, there may be more than enough niche demand to justify its release. The only compromise made with the cutie, compared with its predecessors, is the midrange Snapdragon chipset, but that's now enough to drive the X Compact well, plus Qualcomm's last few flagship Snapdragons haven't exactly been thermal management kings, so the choice of silicon may be for the better.
Other than that, the X Compact delivers very well on most important fronts. It has a good camera with excellent focus-hunting abilities while video recording. The screen is also very bright and with low reflections, making it great for outdoor viewing. The battery life is top-notch, and call quality is loud and clear. These are all things most people are looking for in a handset, and when delivered in a small and handy package at a decent price, they make the phone stand out.
As far as the competition goes, the X Compact is really in a niche of its own right now. There's the cheaper but similarly sized Samsung Galaxy A3 (2016), which has a 4.7” display, a fancier styling, decent camera, and fine battery life, though considerably less-potent hardware. Looking away from Android, the 4.7” iPhone 6 can be found at a similar price point today, and can actually get you much more phone for the money. In the X Compact's $450-$500 range, however, there is little in Android's small-and-strong category but its predecessor, the Z5 Compact, which happens to be a more powerful handset, at a lower price right now.