AAE files are created by the Photos app in iOS 8 and later and OS X 10.10 and later. The files save edits made in the app to images so the original images are not affected. AAE files are stored in the same location as the images for which they contain the edits.
When opening an edited JPG file in Photos, the app references the associated AAE file for any applied edits.
The data in the AAE file is saved in XML format, which means they can be viewed with a text editor such as TextEdit or Notepad.
If you import pictures edited using the Photos app to Windows or an older version of OS X, you will most likely notice these files accompanying your images. In Windows, the .aae extension may be hidden by default, but the AAE files bear the same name of the JPG files for which they contain the edits. Once imported in Windows, AAE files can be deleted without erasing the associated pictures.