Replacing a string with a real number using a variable

Question

I can replace a string by a string using sed, but how can I replace a string with a number? My code is:

while read x 
do
echo $x 
sed 's/xx/$x/g' xy.in > x1
cat > x1 >> x2.dat
done < xyz.dat

I want to replace string xx in xy.in with the number that I read from file xyz.dat. But Instead of the number, I am getting blank spaces in x2.dat.