[Katie Reynolds]

X is kiss and O is hug.

When very few people could read and write, many would make the mark of St. Andrews cross (an X) instead of signing their name. They would then kiss the X to show their good faith and the importance of the mark, and basically saying "I swear to uphold this, in the name of Christ." That's how X came to represent a kiss.

As the O is a North American tradition, there isn't much background to it. But like c-squared said, the O represents arms circling the other person, therefore it represents a hug.

Here's an interesting tidbit - though most illiterate folk would sign their name with an X, Jewish immigrants preferred to sign with and O, to avoid signing something that looks like a cross. And, many shopkeepers would sign and O instead of an X, for whatever reason.