Is XTerm able to do all of the things the regular terminal can do?
Short answer yes.
Longer answer Xterm is a terminal emulator, as is gnome-terminal. gnome-terminal is more configurable then xterm in that you have greater control over colours can assign keyboard shortcuts etc. But what you type into the terminal is exactly the same no matter which terminal emulator you use. What makes the difference in the capabilities of what you can do with the terminal is not the emulator, but the shell There are a number of options of shell most common is bash, another option is fish
Yes and no. As far as commands go, it's the same since it uses the same shell (bash) that every other terminal on your system does.
The reason for this lack of features is that xterm depends only on the core X server, unlike gnome-terminal and the others. It will run even on an Ubuntu that has no graphical environment installed, and uses very little memory (but that doesn't matter unless you have a very old computer)
Note that you can get additional features within xterm by using a text-mode session manager such as byobu (screen), but for most users it's easier to stick to gnome-terminal or alternatives such as xfce4-terminal, etc.