Ok, i have a little more info, for modders/translators who are modifying the game's text files. I made a list with the text file hierarchy, as it is currently used by the game. Here:
dialog.txt >
xdialog.txt >
x2dialog.txt >
ui.txt >
xui.txt >
x2ui.txt >
monsters.txt >
xmonsters.txt >
x2monsters.txt >
menu.txt >
xmenu.txt >
commonequipment.txt >
xcommonequipment.txt >
x2commonequipment.txt >
uniqueequipment.txt >
xuniqueequipment.txt >
x2uniqueequipment.txt >
skills.txt >
xskills.txt >
quest.txt >
xquest.txt >
x2quest.txt >
npc.txt >
xnpc.txt >
x2npc.txt >
install.txt >
xinstall.txt >
tutorial.txt >
xtutorial.txt >
x3mainquest.txt >
x3sidequests.txt >
x3flavournpcs.txt >
x3servicenpcs.txt >
x3tartatus.txt >
x2additionalsidequests.txt >
x3basegame_nonvoiced.txt >
x3mainquest_nonvoiced.txt >
x3sidequests_nonvoiced.txt >
x3nametags_nonvoiced.txt >
x3misctags_nonvoiced.txt >
x3items_nonvoiced.txt
Each file on the list will override all files below it. Dialog.txt will override all, while x3items_nonvoiced.txt will override none. Another thing is, all the tags in x3servicenpcs.txt are used by merchant dialog text and while they are active tags, they are currently unlinked. That means you can dump all the custom tags from your ModStrings.txt file there when making a hard mod. Exception are tags that exist in vanilla, but are modified by you - i recommend you to put those tags in the beginning of Dialog.txt.
Also, there are 4 unused files (do not translate them, they have no effect on the game, actually you're safe to delete them):
x2mainquest.txt
x2sidequest.txt
x2skills.txt
x2tutorial.txt