package.xml is only used for the mdapi metadata format. If you're not using a
src folder with DX, you don't need a
package.xml. There are commands in DX that use this file, but this is really only meant to help you migrate from the older format to the superior source format used by DX for Unlocked Packages and so on.
Note that because the mdapi complains if there are missing or extra files, it was traditionally important to have at least one full
package.xml versioned so that developers had a way to deploy/retrieve package contents. Without it, they had to manually create these files, and it could be very time consuming. This was one of the major limitations of the mdapi format, and the reason why source format doesn't use it.
You may still want to have a
package.xml available in case you need to rebuild a mdapi format directory, but this is optional, as you can always use force:source:convert to get back to a mdapi format directory if you need to. This makes it largely redundant to keep a versioned
package.xml in your repo anywhere.
If you're still using mdapi format, you should not ignore
package.xml, but rather keep it up to date. Developers should copy it and modify it in a separate directory, but always keep a master listing of this file in the repo that contains a full listing. Once you move to source format, you don't need to keep this file around.