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The image is a reference to Samuel Taylor Coleridge's poem, "Kubla Khan", which begins:
In Xanadu did Kubla Khan
A stately pleasure-dome decree:
Where Alph, the sacred river, ran
Through caverns measureless to man
Down to a sunless sea.
Xanadu, while it was once a real place, has come to mean fabulous estates, palatial mansions and luxury beyond measure
Xanadu also has a mystical meaning: There are worlds imagined by us that lie only in our creativity and are intangible and invisible to our everyday experience and senses. Yet they are real: perhaps in dreams, perhaps to other less familiar senses. Xanadu lies between here and there; the medium between things imagined but not yet created, dreamed but not yet manifested.
Project Xanadu is quite a different and fascinating thing altogether. You can find more information about it here.